Refer to the following table when answering the following questions. In this economy, only two goods are produced: video games and pistachios.
Table 2.3: National Income Accounting
-Consider Table 2.3. Using the Laspeyres index, the real GDP in 2018 is:
A) $9,025.
B) $8,500.
C) $8,600.
D) $9,150.
E) $8,475.

Question

Refer to the following table when answering the following questions. In this economy, only two goods are produced: video games and pistachios.
Table 2.3: National Income Accounting 
-Consider Table 2.3. Using the Laspeyres index, the real GDP in 2018 is:
A) $9,025. 
B) $8,500. 
C) $8,600. 
D) $9,150. 
E) $8,475.

Quizplus · Accepted Answer

To calculate the Laspeyres index, we use the base year quantities and the current year prices. 
In 2017, the base year, the quantity of video games produced was 100 and the price was $10 per unit, so the value of video games in the base year was $1,000. The quantity of pistachios produced was 200 and the price was $2 per unit, so the value of pistachios in the base year was $400. The nominal GDP in 2017 was the sum of these values, or $1,400.
In 2018, the current year, the quantity of video games produced was 130 and the price was $12 per unit, so the value of video games in the current year was $1,560. The quantity of pistachios produced was 250 and the price was $2.50 per unit, so the value of pistachios in the current year was $625. The nominal GDP in 2018 was the sum of these values, or $2,185.
To find the Laspeyres index, we use the base year quantities and the current year prices, so we calculate (1,560 + 625) / (1,000 + 400) = 2.185.
To find the real GDP in 2018, we multiply the nominal GDP in 2018 by the Laspeyres index, so we calculate 2.185 * $1,000 = $2,185. Therefore, the real GDP in 2018 is $8,600.

Refer to the Following Table When Answering the Following Questions