Question

Suppose that in 1984 the total output in a single-good economy was 7,000 buckets of chicken. Also assume that in 1984 each bucket of chicken was priced at $15. Finally, assume that in 2005 the price per bucket of chicken was $20 and that 22,000 buckets were produced.
a. What is the GDP price index for 1984, using 2005 as the base year?

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?

In 1984, real GDP = $.

In 2005, real GDP = $

Answer 1

Answer:

A) What is the GDP price index for 1984, using 2005 as the base year?

• the GDP price index using 2005 as base year = [($15 / $20) x 100] = 75

B) By what percentage did the price level, as measured by this index, rise between 1984 and 2005? ...percent.

• the price level increased by: [(100 - 75) / 75] x 100 = 33.33%

C) What were the amounts of real GDP in 1984 and 2005?

• In 1984, real GDP = $20 x 7,000 buckets =  $140,000 or we can also use another method = ($15 x 7,000) / 0.75 = $105,000 / 0.75 = $140,000. The answer using both methods should be the same.
• In 2005, real GDP = $20 x 22,000 buckets = $440,000