Nominal GDP uses current prices as a measure of the value of goods and services

Question

Nominal GDP uses current prices as a measure of the value of goods and services produced, while real GDP uses prices of goods and services in a base year to measure value.

Suppose an economy consists of three goods: pizza, sodas, and televisions. The table below provides the prices and quantities of these goods in 2000 and 2003.


Pizzas Sodas Television

Price in 2000 $15 $1.50 $200
Quantity in 2000 20 60 10

Price in 2003 $18 $1.75 $225
Quantity in 2003 25 80 20



8.5. From 2000 to 2003, which of the following is true?

A. Pizza became relatively cheap, TV relatively more expensive.

B. The relative value of pizza and TV can't be determined.

C. Pizza became relatively more expensive, TV relatively cheap.

D. The relative value of pizza and TV did not change.

Explanation / Answer

In this case, the answer is C. Pizza became relatively more expensive, TV relatively cheap. Hope this helps

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