Scenario: A country produces only one good. It produced 5,000 units of the good during Year 1 and 6,000 units of the good in Year 2. The price of each unit of the good in Year 1 was $280 and it was $320 in Year 2. Suppose Year 1 is taken as the base year for the calculation of GDP.
-Refer to the scenario above.Real GDP of the country has grown by ________.
A) 0.2 percent
B) 20 percent
C) 10 percent
D) 5 percent

Question

Quizplus · Accepted Answer

Real GDP growth is calculated based on the quantities produced and the prices in the base year. In Year 1, the GDP is 5,000 units * $280/unit = $1,400,000. In Year 2, using Year 1 prices, the GDP is 6,000 units * $280/unit = $1,680,000. The growth in real GDP is ($1,680,000 - $1,400,000) / $1,400,000 = 0.2 or 20 percent.

Scenario: a Country Produces Only One Good