Suppose Nova Scotia produces only cheese and fish. Last year, 20 units of cheese are sold at $5 each and 8 units of fish are sold at $50 each. If in the base year the price of cheese was $10 per unit and the price of fish was $75 per unit, what can we conclude?
A) Nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5
B) Nominal GDP is $500, real GDP is $800, and the GDP deflator is 160
C) Nominal GDP is $800, real GDP is $500, and the GDP deflator is 160
D) Nominal GDP is $800, real GDP is $500, and the GDP deflator is 62.5

Question

Quizplus · Accepted Answer

Nominal GDP is calculated using current prices, so it's 20 units of cheese * $5 + 8 units of fish * $50 = $100 + $400 = $500. Real GDP uses base year prices, so it's 20 units of cheese * $10 + 8 units of fish * $75 = $200 + $600 = $800. The GDP deflator is (Nominal GDP / Real GDP) * 100 = ($500 / $800) * 100 = 62.5.

Suppose Nova Scotia Produces Only Cheese and Fish