Suppose an economy produces two products: meat pies and hamburgers.In 2011, 20 meat pies are sold at $5 each, and eight hamburgers are sold at $50 each.In 2010, the base year, the price of meat pies was $10 each, and the price of kebabs was $75 each.Therefore:

Question

Quizplus · Accepted Answer

The real GDP is the value of goods and services produced in an economy in a given year, valued at the prices of a base year. In this case, the base year is 2010. The real GDP in 2011 is calculated as follows:Real GDP = (Quantity of meat pies in 2011 * Price of meat pies in 2010) + (Quantity of hamburgers in 2011 * Price of hamburgers in 2010)= (20 * $10) + (8 * $75)= $200 + $600= $800The GDP deflator is a measure of the overall price level in an economy. It is calculated as the ratio of nominal GDP to real GDP, multiplied by 100. In this case, the nominal GDP in 2011 is $1,000 (20 * $5 + 8 * $50). The GDP deflator is calculated as follows:GDP deflator = (Nominal GDP / Real GDP) * 100= ($1,000 / $800) * 100= 1.25 * 100= 125Therefore, the correct answer is A) the real 2005 GDP is $800, and the GDP deflator is 62.5.

Suppose an Economy Produces Two Products: Meat Pies and Hamburgers