In far-off Drunkmenistan, there are two components of GDP: Vodka and "escort services." Here are two years of output, prices, and labor input.
| Economic Variable | Year 2000 | Year 2001 |
|---|---|---|
| Liters of Vodka (millions) | 10,000 | 10,300 |
| Hours of escort services (millions) | 3000 | 3090 |
| Total Dollar value of Vodka ($billion) | $100 | $106 |
| Total Dollar value of escort services ($billion) | $300 | $318 |
| Average Hourly Wage | $20.00 | $21.00 |
| Average Annual Hours Worked per employed worker | 1700 | 1700 |
| Total Employment (millions of workers) | 10.4 | 10.0 |
Nominal GDP is the dollar value of Vodka plus the dollar value of escort services. What was nominal GDP in 2000? in 2001?
By what percentage did nominal GDP increase between 2000 and 2001?
By what percentage did liters of Vodka increase between 2000 and 2001? By what percentage did hours of escort services increase? How much did real GDP increase?
If 2000 is the base year, then real GDP in 2000 equals nominal GDP in 2000. What was real GDP in 2000? Using the growth rate of real GDP, how much was real GDP in 2001?
Inflation is the difference between the percentage increase in nominal GDP and the percentage increase in real GDP. What was inflation between 2000 and 2001?
Let's try calculating inflation directly. Take 2000 as the base year. What was the price of Vodka? What was the price of escort services? Now turn to 2001. What was the price of Vodka? What was the price of escort services? What was the rate of price increase for Vodka? For escort services? How do these compare with your previous answer?
What was the rate of increase in average hourly wages from 2000 to 2001? What was the rate of increase in the real wage rate?
Calculate total hours worked in each year by multiplying total employment by the average annual hours worked per employed worker.
Productivity is real GDP divided by total hours worked. Calculate this for 2000 and 2001.
Unit Labor Cost is the average hourly wage divided by productivity. Calculate this for 2000 and 2001. What was the increase or decrease in unit labor cost from 2000 to 2001?
The growth in real unit labor cost equals the rate of increase in unit labor cost minus the rate of increase of price inflation. What was the growth of real unit labor cost?