Question

In an economy, the total expenditures for a market basket of goods in year 1 (the base year) were $5,000 billion. In year 2, the total expenditure for the same market basket of goods was $5,500 billion. What was the GDP price index for the economy in year 2?

Answer 1

Answer:

The GDP price index for the economy in year 2 is 110.

Explanation:

It is given that the total expenditures for a market basket of goods in year 1 (the base year) were $5,000 billion.

Price of market basket in base year = $5000

In year 2, the total expenditure for the same market basket of goods was $5,500 billion.

Price of market basket in specific year = $5500

GDP price index:

$\text{GDP price index}=\frac{\text{Price of market basket in specific year}}{\text{Price of market basket in base year}}\times 100$

$\text{GDP price index}=\frac{5500}{5000}\times 100$

$\text{GDP price index}=110$

Therefore the GDP price index for the economy in year 2 is 110.