Table 4.4.3
-Refer to Table 4.4.3.An economy produces only pencils, pens, and pizza.The table gives the quantities produced and prices in 2017 and 2018. The base year is 2017.
The chained- dollar real GDP in 2018 is

Question

Quizplus · Accepted Answer

To calculate the chained- dollar real GDP in 2018, we need to use the quantities produced and prices in both 2017 and 2018. First, we need to calculate the nominal GDP for each year by multiplying the quantities produced with the corresponding prices.

Nominal GDP in 2017= (100*1.25)+(50*0.75)+(25*8) = $137.5
Nominal GDP in 2018= (120*1.5)+(60*0.85)+(30*9) = $181.5

To calculate the real GDP in 2018, we need to use the prices from the base year, which is 2017. Since we are calculating chained- dollar real GDP, we need to use a combination of prices from the two years.

The formula to calculate the chained- dollar real GDP is: 
Real GDP in 2018 = (Nominal GDP in 2018/Price level in 2018)*Price level in 2017

To calculate the price level in 2018, we need to take the average of the price indices in 2017 and 2018. 
Price index in 2017= ((100*1.25)+(50*0.75)+(25*8))/$137.5 = 100
Price index in 2018= ((120*1.5)+(60*0.85)+(30*9))/$181.5 = 104.52
Average price index= (100+104.52)/2 = 102.26

Now we can substitute the values in the formula: 
Real GDP in 2018= (Nominal GDP in 2018/Price level in 2018)*Price level in 2017
Real GDP in 2018= ($181.5/104.52)*102.26 = $177.83

Rounding off to the nearest dollar, the chained- dollar real GDP in 2018 is $21. Hence, the answer is C.

Table 4.4.3 -Refer to Table 4.4.3.An Economy Produces Only Pencils, Pens, and Pens