Suppose an economy produces only strawberries and ice cream. Last year, 50 units of strawberries are sold at $2 per unit, and 100 units of ice cream are sold at $4 per unit. If the price of strawberries was $1 per unit and the price of ice cream was $2 per unit in the base year, what can we conclude?

Question

Quizplus · Accepted Answer

Nominal GDP is calculated using current year prices: (50*$2) + (100*$4) = $500. Real GDP is calculated using base year prices: (50*$1) + (100*$2) = $250. The GDP deflator is (Nominal GDP/Real GDP) * 100 = (500/250) * 100 = 200.

Suppose an Economy Produces Only Strawberries and Ice Cream