Question

Suppose there are five goods in the economy, A-E. The current-year quantity of each is 10A, 20B, 30C, 40D, and 50E. Current-year prices are $1 for each unit of A, $2 for each unit of B, $3 for each unit of C, $4 for each unit of D, and $5 for each unit of E. Base-year prices are $1 for each good. Real GDP in the current year equals _________ and GDP equals _________.

Answer 1

Answer:

The real GDP is $150 and GDP is $550

Explanation:

There are five goods in the economy, A-E.

The current-year quantity of each is 10A, 20B, 30C, 40D, and 50E.

Current-year prices are $1 for each unit of A, $2 for each unit of B, $3 for each unit of C, $4 for each unit of D, and $5 for each unit of E.

Base-year prices are $1 for each good.

The real GDP is the value of output produced at base year price.

Real GDP

= 10 +20 + 30 + 40 + 50

= $150

The nominal GDP is the value of output produced at the current prices.

Nominal GDP

= 1 × 10 + 2 × 20 + 3 × 30 + 4 × 40 + 5 × 50

= 10 + 40 + 90 + 160 + 250

= $550