Consider a small country producing only two commodities (coffee beans and corn). Following are the price and output of these two commodities in the year 2008:
$\begin{array}{|l|l|}
\hline \text { Price } & \text { Quantity } \
\hline \$ 12 & 500 \mathrm{lbs} \text {. of coffee beans } \
\hline \$ 6 & 600 \text { bushels of corn } \
\hline
\end{array}$
Assuming the price level in the economy remains same while the output of both these products increase by 10 percent in 2009, calculate the value of real GDP in this country for the year 2009?

Question

Consider a small country producing only two commodities (coffee beans and corn). Following are the price and output of these two commodities in the year 2008:
 $\begin{array}{|l|l|}
\hline \text { Price } & \text { Quantity } \
\hline \$ 12 & 500 \mathrm{lbs} \text {. of coffee beans } \
\hline \$ 6 & 600 \text { bushels of corn } \
\hline
\end{array}$ 
Assuming the price level in the economy remains same while the output of both these products increase by 10 percent in 2009, calculate the value of real GDP in this country for the year 2009?

Quizplus · Accepted Answer

To calculate real GDP, we need to use constant prices (base year prices), which in this case will be the prices in 2008. Since the price level remains the same in 2009, the constant prices will also be the same as the actual prices in 2009.

We first need to calculate the value of coffee beans and corn in 2008:

Value of coffee beans = Price x Quantity = $12 x 500 = $6,000 
Value of corn = Price x Quantity = $6 x 600 = $3,600

Total value of goods and services produced in 2008 (nominal GDP) = $6,000 + $3,600 = $9,600

To calculate real GDP in 2009, we need to use the constant prices from 2008:

Value of coffee beans in 2009 = Price in 2008 x Quantity in 2009 = $12 x 1.1 x 500 = $6,600 
Value of corn in 2009 = Price in 2008 x Quantity in 2009 = $6 x 1.1 x 600 = $3,960

Total value of goods and services produced in 2009 (real GDP) = $6,600 + $3,960 = $10,560

Therefore, the answer is B - $10,560.

Consider a Small Country Producing Only Two Commodities (Coffee Beans