Suppose an economy produces only wheat and rice.Last year,20 bushels of wheat are sold at $4 per bushel,and 10 bushels of rice are sold at $2 per bushel.If the price of wheat was $2 per bushel and the price of rice was $1 per bushel in the base year,what can we conclude?

Question

Quizplus · Accepted Answer

Using the base year prices of $2 per bushel of wheat and $1 per bushel of rice, we can calculate the nominal GDP for last year as follows:
Nominal GDP = (20 bushels of wheat × $4 per bushel) + (10 bushels of rice × $2 per bushel) 
Nominal GDP = $80 + $20 
Nominal GDP = $100

To calculate real GDP, we use the base year prices and quantities:
Real GDP = (20 bushels of wheat × $2 per bushel) + (10 bushels of rice × $1 per bushel) 
Real GDP = $40 + $10 
Real GDP = $50

Finally, we can calculate the GDP deflator as the ratio of nominal GDP to real GDP multiplied by 100:
GDP deflator = (Nominal GDP / Real GDP) × 100 
GDP deflator = ($100 / $50) × 100 
GDP deflator = 200

Therefore, the correct choice is B.

Suppose an Economy Produces Only Wheat and Rice