(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
In part C, you were asked to calculate nominal GDP. But recall that nominal GDP does not control for changes in prices. In this part, you were asked to calculate real GDP using 2012 prices.
(Description)
The economy of Britannica produces three goods: computers, Blu-rays, and pizzas. The accompanying table shows the prices and output of the three goods for the years 2012, 2013, and 2014. Table consists of 7 columns and 3 rows. Columns are as follows: 1 - year; 2 and 3 - price and quantity for computers, respectively; 4 and 5 - price and quantity for Blu-rays, respectively; 6 and 7 - price and quantity for pizzas. In 2012, the price of computers was 900 dollars, and the quantity was 10; the price of Blu-rays was 10 dollars and the quantity was 100; the price of pizzas was 15 dollars and the quantity was 2. In 2013, the price of computers was 1000 dollars, and the quantity was 10.5; the price of Blu-rays was 12 dollars and the quantity was 105; the price of pizzas was 16 dollars and the quantity was 2. In 2014, the price of computers was 1050 dollars, and the quantity was 12; the price of Blu-rays was 14 dollars and the quantity was 110; the price of pizzas was 17 dollars and the quantity was 3. Calculate real GDP in Britannica using 2012 prices for each of the three years. What is the percent change in real GDP from 2012 to 2013 and from 2013 to 2014?
(Speaker)
We are going to start by calculating real GDP in 2012, using 2012 as the base year. In the base year, nominal GDP will equal real GDP.
(Description)
Market value of computers is presented: 900 dollars times 10, equals to 9000 dollars.
Market value of Blu-rays is presented: 10 dollars times 100, equals to 1000 dollars.
Market value of pizzas is presented: 15 dollars times 2, equals to 30 dollars.
(Speaker)
Here, we show the market values of the three goods are the same, as when we calculated nominal GDP. So the real GDP for Britannica in 2012 is 10030 dollars.
(Description)
Real GDP in 2012 is presented as a sum of 9000 dollars, 1000 dollars, and 30 dollars, equal to 10030 dollars. Real GDP equals Nominal GDP for the base year.
(Speaker)
Next, we are going to calculate the real GDP in 2013, using the prices from 2012. Here we highlighted the price of computers in 2012 and the quantity of computers produced in 2013.
(Description)
Value of computers in 2013 (using prices of 2012) is presented: 900 dollars times 10.5, equals to 9450 dollars.
(Speaker)
So the value of computers in 2013, using 2012 prices, is 900 dollars times 10.5, or 9450 dollars. Continuing with Blu-rays, the value of Blu-rays in 2013, using 2012 prices, is 10 dollars times 105, or 1050 dollars.
(Description)
Value of Blu-rays in 2013 (using prices of 2012) is presented: 10 dollars times 105, equals to 1050 dollars.
(Speaker)
Finally, the value of pizzas in 2013, using 2012 prices, is 15 dollars times 2, which is 30 dollars.
(Description)
Value of pizzas in 2013 (using prices of 2012) is presented: 15 dollars times 2, equals to 30 dollars.
(Speaker)
To find real GDP in 2013, using 2012 prices, we must add up the value of computers, Blu-rays, and pizzas. Doing so we find that the real GDP is 9450 dollars plus 1050 dollars plus 30 dollars, which equals 10530 dollars.
(Description)
Real GDP in 2013 (using 2012 prices) is presented as a sum of 9450 dollars, 1050 dollars, and 30 dollars, equal to 10530 dollars.
(Speaker)
We will use the same process for calculating real GDP in 2014, using 2012 prices. In the table, we have highlighted 2012 prices with 2014 quantities and proceeded to calculate the market values for each of the three goods.
(Description)
Market value of computers (using 2012 prices) is presented: 900 dollars times 12, equals to 10800 dollars.
Market value of Blu-rays (using 2012 prices) is presented: 10 dollars times 110, equals to 1100 dollars.
Market value of pizzas (using 2012 prices) is presented: 15 dollars times 3, equals to 45 dollars.
Real GDP in 2014 (using 2012 prices) is presented as a sum of 10800 dollars, 1100 dollars, and 45 dollars, equal to 11945 dollars.
(Speaker)
Doing so, the market values for computers, Blu-rays, and pizzas are 10800 dollars, 1100 dollars, and 45 dollars, which means real GDP in 2014, using 2012 prices, is 11945 dollars. In the table, you can see that we have added the column for real GDP.
(Description)
New column with real GDP values - 10030 dollars for 2012, 10530 dollars for 2013, and 11945 dollars for 2014 - is added in the table.
(Speaker)
In the final part of the problem, you're asked to calculate the annual percent change in real GDP. Using the formula for percent change, first take the difference in real GDP from 2012 to 2013, 10530 dollars minus 10030 dollars, and then divide by the real GDP in 2012.
(Description)
The percent change in real GDP from 2012 to 2013 is presented: fraction, 10530 dollars minus 10030 dollars in the numerator, 10030 dollars in the denominator, times 100, equals 5 percent.
(Speaker)
This yields an annual change of 5 percent. Continuing with 2014, the annual percent change is found by taking the difference in 11945 dollars and 10530 dollars and then dividing by 10530 dollars. Doing so yields a real GDP growth rate of 13.4 percent.
(Description)
The percent change in real GDP from 2013 to 2014 is presented: fraction, 11945 dollars minus 10530 dollars in the numerator, 10530 dollars in the denominator, times 100, equals 13.4 percent.