Suppose that in 1984 the total output in a single-good economy was 7,000 buckets

Question

Suppose that in 1984 the total output in a single-good economy was 7,000 buckets of chicken. Also suppose that in 1984 each bucket of chicken was priced at $10. Finally, assume that in 2005 the price per bucket of chicken was $16 and that 22,000 buckets were produced Instructions: In part a, enter your answer as an index number rounded to 1 decimal place. In parts b-c,enter your answers as whole numbers a. What is the GDP price index for 1984, using 2005 as the base year? 62.5 b. By what percentage did the price level, as measured by this index, rise between 1984 and 2005? percent C. What were the amounts of real GDP in 1984 and 2005? n 1984, real GDP- In 2005, real GDP

Explanation / Answer

In 1984 , each bucket of chicken was priced at $10. And total 7,000 buckets were produced.

In 2005, each bucket of chicken was priced at $16. And total 22,000 buckets were produced.

(a) GDP price index for 1984 , using 2005 as the base year is=

$(10/ 16) (100) = $ 62.5

(b) Percentage did the price level. as measured bybthe price index rise between 1984 and 2005 is =

[(100- 62.5)/62.5 ] (100) = 60% or

[(16- 10)/10] (100) = 60%.

(c) Amounts of real GDP in 1984 and 2005,

In 1984, real GDP = $ (7,000)(16) = $112,000 [because 2005 was the base year]

In 2005 , real GDP = $(22,000)(16) = $ 352,000

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