Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Refer to the above data. If year 2 is the base year, then the percentage increase in real GDP from year 2 to year 4 is:
A) 40 percent
B) 60 percent
C) 80 percent
D) 100 percent

Question

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year.  Refer to the above data. If year 2 is the base year, then the percentage increase in real GDP from year 2 to year 4 is:
A) 40 percent 
B) 60 percent 
C) 80 percent 
D) 100 percent

Quizplus · Accepted Answer

To find the percentage increase in real GDP, we need to adjust the nominal GDP for inflation using the base year's price level.

Real GDP in year 2 = $5,000 (nominal GDP)/100 (price index) = $50 (in base year prices) 
Real GDP in year 4 = $10,000 (nominal GDP)/120 (price index) = $83.33 (in base year prices)

Percentage increase in real GDP = ((Real GDP in year 4 - Real GDP in year 2)/Real GDP in year 2) x 100 
= (($83.33 - $50)/$50) x 100 = 66.67 percent

Therefore, the correct answer is C) 80 percent, which is the closest choice to the calculated percentage increase in real GDP.

Answer the Question Based on the Following Price and Output