Use the following information to answer this question about the country of Polity: $$\begin{array} { l c c c c }
& 2000 & &{ 2001 } \
\hline \text { Good } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \
\hline \text { Guns } & 4000 & \$ 4 & 4500 & \$ 6 \
\text { Butter } & 5000 & \$ 3 & 5200 & \$ 2 \
\hline
\end{array}$$ Using a fixed-weight price index with 1998 as the base year, what is the percent change in real output from 2000 to 2001?

Question

Use the following information to answer this question about the country of Polity: $$\begin{array} { l c c c c } 
& 2000 & &{ 2001 } \
\hline \text { Good } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \
\hline \text { Guns } & 4000 & \$ 4 & 4500 & \$ 6 \
\text { Butter } & 5000 & \$ 3 & 5200 & \$ 2 \
\hline
\end{array}$$ Using a fixed-weight price index with 1998 as the base year, what is the percent change in real output from 2000 to 2001?

Quizplus · Accepted Answer

To calculate the percent change in real output, we need to use the quantities from 2000 and 2001 and the prices from the base year (1998). However, since the base year prices are not provided, we assume the prices in 2000 are used as a proxy. Calculate the real GDP for both years using 2000 prices: 2000 real GDP = (4000 guns * $4) + (5000 butter * $3) = $31,000; 2001 real GDP = (4500 guns * $4) + (5200 butter * $3) = $34,100. The percent change in real output is (($34,100 - $31,000) / $31,000) * 100% = 10%.

Use the Following Information to Answer This Question About the Country