Week 2 — Did It Grow, or Did Prices Rise? A Short GDP Report — Traditional alternative (no AI)

Instructors: publish this instead of the adaptive version if you prefer, and unpublish or delete the adaptive one.

Assignment 2 of the term — measure an illustrative economy's output, separate real growth from rising prices, and explain the difference to someone new to economics.

This week you learned to measure an economy's output with GDP, to decide which sales count, and to separate real GDP from nominal GDP with the GDP deflator. Last week you traced the circular flow, where every dollar spent is a dollar of income; this week that idea becomes a measurement. In this assignment you work four short problems on illustrative data, interpret each one, and explain the difference between real growth and rising prices to someone who has never studied economics. This week's lecture tutorial, quiz, discussion, and Model Workshop practise the same ideas from other angles.

The task

You will use two illustrative datasets constructed for this course (not real data). The expenditure account, in billions of dollars: consumption C = 700, investment I = 200, government purchases G = 250, exports X = 100, and imports IM = 150. The two-good economy, in dollars: in the base year it makes 40 pizzas at 5 dollars and 100 coffees at 1 dollar, for a base-year GDP of 300 dollars; in year 2 it makes 44 pizzas at 5.50 dollars and 110 coffees at 1.10 dollars, and the same year-2 output valued at base-year prices is a real GDP of 330 dollars.

Work these four problems, showing your arithmetic:

1. In the illustrative expenditure account (billions of dollars), C = 700, I = 200, G = 250, X = 100, and IM = 150. What is GDP?
2. In the illustrative two-good economy, year 2 produces 44 pizzas at 5.50 dollars each and 110 coffees at 1.10 dollars each. What is year-2 nominal GDP in dollars?
3. The illustrative expenditure account has nominal GDP of 1,100 billion dollars and real GDP of 1,000 billion dollars. What is its GDP deflator, computed as nominal GDP divided by real GDP, times 100?
4. In the illustrative two-good economy, real GDP is 300 dollars in the base year and 330 dollars in year 2. By what percent did real output grow, computed as the change divided by the starting value, times 100?

Beside each answer, add one brief interpretation: what that value measures and one point about real versus nominal values or about what GDP counts. For P1, say what the sign of net exports does to GDP. For P2, say how the nominal figure differs from the real GDP of 330 dollars. For P3, say what the deflator tells you about prices, and what it does not tell you about output. For P4, use the check (1 + real growth) × (1 + inflation) = (1 + nominal growth) to explain how output growth of 10 percent fits inside nominal growth of 21 percent.

Show your arithmetic. A reader should be able to reproduce every number you report from the values above without guessing which values or steps you used.

Explain it to a non-expert

A neighbor who runs a small food stall heard that this tiny economy's GDP "jumped 21 percent" and wants to know whether that means people are making a lot more food. Write a 3–5 sentence message that answers the question with your results, gives a reason tied to these data, and names one limit — for example, that the numbers are illustrative, or that GDP measures output, not how well people are living. Explain any technical term, such as real or nominal, in everyday words. More than one way of putting it can be correct.

For a different, ungraded example, imagine a bookstore owner who sees that this year's sales receipts are higher than last year's after the store raised its prices. Model answer: "Your receipts went up, but part of that is your new prices, not more books sold. To see whether you sold more, count the books, or price this year's sales at last year's prices and compare. That tells you whether the shop got busier, though not whether it got more profitable."

Use that pattern for the food stall, with your own results and reasoning.

Deliverables

Submit a single GDP report containing:

• the four answers, each with the arithmetic shown and a brief interpretation of what that value measures and one point about real versus nominal values or what GDP counts;
• your message to the neighbor, answering whether people are making a lot more food, with a reason tied to these data and one named limit; and
• a one-line restatement of the values you used, so your results are reproducible.

Keep it to roughly one page. Clear and correct beats long.

Choose how you show it. Present your report as written text, or as a recorded audio or video explanation of about three minutes with a transcript, or as a labelled spreadsheet with a short note. Every form is graded by the same scoring criteria. Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

How you'll be graded

The full analytic rubric is attached to this assignment in Canvas.

Academic integrity and AI use

This version is designed to be completed without AI: do the computations, the interpretations, and the writing yourself, without a chatbot or other AI tool. You may use a calculator or a spreadsheet for the arithmetic. Submitting AI-generated work as your own, or copying another student's numbers, is an integrity violation under the course policy.

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