An economy produces only eggs and ham. Last year, it produced 100 units of eggs at $3 each and 50 units of ham at $4 each. If in the base year eggs sold for $1.50 per unit and ham sold for $5 per unit, what can we conclude?

Question

Quizplus · Accepted Answer

Nominal GDP is calculated using current year prices: (100 eggs * $3) + (50 hams * $4) = $300 + $200 = $500. Real GDP is calculated using base year prices: (100 eggs * $1.50) + (50 hams * $5) = $150 + $250 = $400. The GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. GDP deflator = (Nominal GDP / Real GDP) * 100 = ($500 / $400) * 100 = 125.

An Economy Produces Only Eggs and Ham