A simple economy produces two goods, Apple Pies and Technical Manuals. Price and
ID: 1112204 • Letter: A
Question
A simple economy produces two goods,
Apple Pies
and
Technical Manuals.
Price and quantity data are as follows:
Production and Prices in Year 1 (Base year)
Product
Quantity
Price Per Unit
Apple PiesApple Pies
100
$3.00
Technical ManualsTechnical Manuals
550
$45.00
Production and Prices in Year 2
Product
Quantity
Price Per Unit
Apple PiesApple Pies
125.00
$4.50
Technical Manuals
825.00
$90.00
In Year 2, nominal GDP is equal to:
$,
and real GDP is
$
(enter both responses rounded to the nearest penny).
Product
Quantity
Price Per Unit
Apple PiesApple Pies
100
$3.00
Technical ManualsTechnical Manuals
550
$45.00
Explanation / Answer
In year 2, Nominal GDP ($) = Sum of (Current year price x Current year quantity)
= 4.5 x 125 + 90 x 825 = 562.5 + 74,250 = 74,812.50
In year 2, Real GDP ($) = Sum of (Base year (Year 1) price x Current year quantity)
= 3 x 125 + 45 x 825 = 375 + 37,125 = 37,500.00
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