Suppose an economy produces only cheese and fish.In 2008,20 units of cheese are sold at $5 each and 8 units of fish are sold at $50 each.In 2007,the base year,the price of cheese was $10 per unit and the price of fish was $75 per unit.For 2008,

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Nominal GDP is the value of all goods and services produced in an economy in a given year, using current prices. In this case, nominal GDP is $500 (20 units of cheese x $5 each + 8 units of fish x $50 each).Real GDP is the value of all goods and services produced in an economy in a given year, using base year prices. In this case, real GDP is $800 (20 units of cheese x $10 each + 8 units of fish x $75 each).The GDP deflator is a measure of the overall price level in an economy. It is calculated by dividing nominal GDP by real GDP and multiplying by 100. In this case, the GDP deflator is 62.5 ($500 / $800 x 100).

Suppose an Economy Produces Only Cheese and Fish