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ECO403 Assignment solution 2025 by VU

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13 views

ECO403 Assignment solution 2025 by VU

Uploaded by

LUBNA JAVED
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MACROECONOMICS (ECO403)

SEMESTER SPRING 2025


ASSIGNMENT SOLUTION
Submitted by: [UR NAME]
VU LMS ID: [UR ID]
Semester: Spring 2025
Solved by: Ali Khan

Due Date: May 02, 2025


Marks: 10

The Case:
Imagine a simple economy in which two people live on an isolated island. They are entirely self-
sufficient and produce all the goods they consume. Their economy consists of just two goods:
oranges and coconuts. The following table shows the production quantities and prices for three
years.
Year Quantities Quantities Price of Price of
(Oranges) (Coconuts) Oranges Coconuts
2022 50 500 100 50
2023 150 250 110 40
2024 1000 600 200 90
---

Requirements and Solutions:


Part i: Nominal GDP Calculation (2022, 2023, 2024)
Formula: Nominal GDP = (Quantity of Oranges × Price of Oranges) + (Quantity of Coconuts ×
Price of Coconuts)
For 2022: (50 × 100) + (500 × 50) = 5000 + 25000 = 30,000
For 2023: (150 × 110) + (250 × 40) = 16500 + 10000 = 26,500
For 2024: (1000 × 200) + (600 × 90) = 200,000 + 54,000 = 254,000
Nominal GDP Summary: 2022: 30,000 | 2023: 26,500 | 2024: 254,000

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Part ii: Real GDP (Base Year 2022)
Formula: Real GDP = (Quantity of Oranges × Base Year Price of Oranges) + (Quantity of
Coconuts × Base Year Price of Coconuts)
For 2022: 30,000
For 2023: (150 × 100) + (250 × 50) = 15,000 + 12,500 = 27,500
For 2024: (1000 × 100) + (600 × 50) = 100,000 + 30,000 = 130,000
Real GDP Summary: 2022: 30,000 | 2023: 27,500 | 2024: 130,000
Part iii: GDP Deflator (2023 and 2024)
Formula: GDP Deflator = (Nominal GDP / Real GDP) × 100
For 2023: (26,500 / 27,500) × 100 = 96.36
For 2024: (254,000 / 130,000) × 100 = 195.38
GDP Deflator Summary: 2023: 96.36 | 2024: 195.38
Part iv: Inflation Rate (2023 and 2024)
Formula: Inflation Rate = ((GDP Deflator Current Year – GDP Deflator Previous Year) / GDP
Deflator Previous Year) × 100
Inflation Rate for 2023: ((96.36 - 100) / 100) × 100 = -3.64% (Deflation)
Inflation Rate for 2024: ((195.38 - 96.36) / 96.36) × 100 = 102.76%
Final Summary Table:
Year Nominal GDP Real GDP GDP Deflator Inflation Rate
2022 30,000 30,000 100 -
2023 26,500 27,500 96.36 -3.64%
2024 254,000 130,000 195.38 102.76%
---
End of Assignment

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