Suppose an economy produces only burgers and bags of fries.In 2010,4000 burgers are sold at $3 each and 6000 bags of fries are sold at $1.50 each.In 2008,the base year,burgers sold for $2.50 each and bags of fries sold for $2 each.

Question

Quizplus · Accepted Answer

To calculate the nominal GDP, we multiply the quantity produced with the current market price. In 2010, 4000 burgers were produced and sold at $3 each, so the contribution of burgers to nominal GDP = 4000*3 = $12,000. Similarly, 6000 bags of fries were produced and sold at $1.50 each, so the contribution of fries to nominal GDP = 6000*1.5 = $9,000. Adding the contributions of burgers and fries, we get the nominal GDP for 2010 = $21,000.

To calculate the real GDP, we need to use the prices from the base year, which is 2008. Using the same quantities produced in 2010, but the prices from 2008, the contribution of burgers to real GDP = 4000*2.50 = $10,000, and the contribution of fries to real GDP = 6000*2 = $12,000. Adding these up gives us the real GDP for 2010 = $22,000.

The GDP deflator is the ratio of nominal GDP to real GDP, multiplied by 100. Therefore, the GDP deflator for 2010 = (21000/22000)*100 = 95.45.

Suppose an Economy Produces Only Burgers and Bags of Fries