Consider a small country producing only two commodities (coffee beans and corn). Following are the price and output of these two commodities in the year 2008:
$\begin{array}{|l|l|}
\hline \text { Price } & \text { Quantity } \
\hline \$ 12 & 500 \mathrm{lbs} \text {. of coffee beans } \
\hline \$ 6 & 600 \text { bushels of corn } \
\hline
\end{array}$
Assuming that the output of these two commodities remains constant, while the price of each rises by 10 percent in 2009, compute the value of real GDP in 2009.

Question

Consider a small country producing only two commodities (coffee beans and corn). Following are the price and output of these two commodities in the year 2008: 
$\begin{array}{|l|l|}
\hline \text { Price } & \text { Quantity } \
\hline \$ 12 & 500 \mathrm{lbs} \text {. of coffee beans } \
\hline \$ 6 & 600 \text { bushels of corn } \
\hline
\end{array}$ 
Assuming that the output of these two commodities remains constant, while the price of each rises by 10 percent in 2009, compute the value of real GDP in 2009.

Quizplus · Accepted Answer

Real GDP is calculated using constant prices from a base year. In this case, the base year is 2008. The real GDP for 2009 is calculated using 2008 prices: (500 lbs of coffee beans * $12) + (600 bushels of corn * $6) = $6,000 + $3,600 = $9,600.

Consider a Small Country Producing Only Two Commodities (Coffee Beans