The table below gives the quantities and prices for 2005 and 2015 for an economy that produces just two goods: sailboats and coconuts.

For this economy that produces just sailboats and coconuts, and with 2005 as the base year, real GDP was approximately ________ times larger in 2015 than it was in 2005.
A)1.34
B)1.65
C)1.77
D)2.19

Question

The table below gives the quantities and prices for 2005 and 2015 for an economy that produces just two goods: sailboats and coconuts.  
  
For this economy that produces just sailboats and coconuts, and with 2005 as the base year, real GDP was approximately ________ times larger in 2015 than it was in 2005.
A)1.34 
B)1.65 
C)1.77 
D)2.19

Quizplus · Accepted Answer

First note that in order to find real GDP, we must use the prices from the base year in both commutations. So real GDP in 2005 was: (10 sailboats × $500)+ (2,000 coconuts × $1)= $7,000. Real GDP in 2015 was (20 sailboats × $500)+ (2,400 coconuts × $1)= $12,400. Thus, real GDP in 2015 was 1.77 times larger ($12,400 / 7,000)than in 2005.

The Table Below Gives the Quantities and Prices for 2005