Question

A simple economy produces two goods, Bread and Technical Manuals. Price and quantity data are as follows:Production and Prices in Year 1 (Base year)Product Quantity Price Per UnitBread 120 $3.00Technical Manuals 800 $50.00Production and Prices in Year 2Product Quantity Price Per UnitBread 150 $4.50Technical Manuals 1,200 $100.00In Year 2, nominal GDP is equal to: _ , and real GDP is _ (enter both responses rounded to the nearest penny).

Answer 1

Answer: (1) 120,675

(2) 60,450

Explanation:

(1) Nominal GDP, year 2 ($) = Sum of (Year 2 price × Year 2 quantity)

                                              = 150 × 4.50 + 1,200 × 100

                                              = 675 + 120,000

                                            = 120,675

(2) Real GDP, year 2 ($) = Sum of (Year 1 price x Year 2 quantity)

                                        = 3 × 150 + 50 × 1200

                                       = 450 + 60,000

                                        = 60,450