Consider a small country producing only two commodities (coffee beans and corn).Following are the price and output of these two commodities in the year 2008: Assuming that the output of these two commodities remains constant, while the price of each rises by 10 percent in 2009, compute the value of real GDP in 2009.

Question

Consider a small country producing only two commodities (coffee beans and corn).Following are the price and output of these two commodities in the year 2008:  Assuming that the output of these two commodities remains constant, while the price of each rises by 10 percent in 2009, compute the value of real GDP in 2009.

Quizplus · Accepted Answer

To calculate real GDP in 2009, we need to use the 2008 prices as the base year prices. Since we are assuming that output remains constant, the only change in nominal GDP in 2009 will come from the increase in prices.
Nominal GDP in 2008 = ($5 × 1,000) + ($3 × 2,000) = $11,000
Nominal GDP in 2009 = ($5.50 × 1,000) + ($3.30 × 2,000) = $12,100
To calculate real GDP in 2009, we multiply the quantities produced in 2008 by the 2008 prices:
Real GDP in 2009 = ($5 × 1,000) + ($3 × 2,000) = $9,600
Therefore, the correct answer is C.

Consider a Small Country Producing Only Two Commodities (Coffee Beans