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 for the base year, in year 3 nominal GDP and real GDP, respectively, are:

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 for the base year, in year 3 nominal GDP and real GDP, respectively, are:

Quizplus · Accepted Answer

To calculate nominal GDP, we multiply the output quantity by the corresponding price level for each year.

For year 2 (the chosen base year), the output quantity is 6 and the price level is $30. Thus, nominal GDP for year 2 is:

Nominal GDP (Year 2) = 6 x $30 = $180

To calculate real GDP, we use the output quantity from the base year but multiply it by the prices in the current year.

For year 3, the output quantity is 8 (which is 33.3% higher than in the base year) and the price level is $15 (which is 50% lower than in the base year). Thus, real GDP for year 3 is:

Real GDP (Year 3) = 6 x $15 = $90

Therefore, the answer is C ($180 and $90).

Assume an Economy Which Is Producing Only One Product