Suppose the information in the following table is for a simple economy that prod

Question

Suppose the information in the following table is for a simple economy that produces only the following four goods and services: textbooks, hamburgers, shirts, and cotton. Assume that all the cotton is used in the process of producion.

                             2005           2009                 2010

Textbooks    Q: 80 P:49     Q:100 P:60    Q:100  P:65

Hamburgers Q:65 P:1.5    Q:100 P: 2      Q:120 P:2.25

Shirts              Q:40  P:28    Q:50   P:25      Q:65  P:25

cotton             Q:10000 P:6.5   Q: 8000 P:.6   Q:12000 P:.7

a. use the info. in  the table to calculate real GDP for 2009 and 2010, assuming that the base year is 2005.

b. what is the growth rateof real GDP during 2010?

Explanation / Answer

Note that the economy produces only 4 goods and if all the cotton is used in production, then it should have been used in shirt production. Therefore, cotton is an intermediate good and we need not consider cotton for calculation of GDP as GDP is the value of finished goods produced in a particular year.

a. Real GDP is calculated as the product of quantity in the current year and the price of the good in the base year. For example real GDP of text books in 2009 is calculated as below.

Similarly, the real GDP for 2010 is calculated and given in the below table.

Thus, the real GDP of 2009 is $6,450 and 2010 id $6,900

b. what is the growth rate of real GDP during 2010?

Growth rate of real GDP is calculated as shown below;

Thus, the GDP growth rate is 6.97%

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