Assume an economy which is producing only one product.Output and price data for a three-year period are as follows. Refer to the above data.If year 2 is chosen as the base year, real GDP for year 1 is:
A)$25
B)$100
C)$50
D)$80

Question

Assume an economy which is producing only one product.Output and price data for a three-year period are as follows.  Refer to the above data.If year 2 is chosen as the base year, real GDP for year 1 is:
A)$25 
B)$100 
C)$50 
D)$80

Quizplus · Accepted Answer

To calculate real GDP for year 1, we need to use the prices from year 2 as the base and apply them to the year 1 output. 
Real GDP for year 1 = (Year 1 output x Year 2 prices) / Year 1 prices 
Real GDP for year 1 = (20 x 50) / 40 = $25 
Therefore, the correct answer is option D.

Assume an Economy Which Is Producing Only One Product