Suppose an economy produces only solar panels and wind turbines. Last year, 20 solar panels were sold at $400 per panel and 10 wind turbines were sold at $2000 per turbine. If the price of solar panels was $200 per panel and the price of wind turbines was $1000 per turbine in the base year, what can we conclude?

Question

Quizplus · Accepted Answer

Nominal GDP is calculated using current year prices: (20 solar panels * $400) + (10 wind turbines * $2000) = $8000 + $20000 = $28000. Real GDP is calculated using base year prices: (20 solar panels * $200) + (10 wind turbines * $1000) = $4000 + $10000 = $14000. The GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. GDP deflator = (Nominal GDP / Real GDP) * 100 = ($28000 / $14000) * 100 = 200.

Suppose an Economy Produces Only Solar Panels and Wind Turbines