Question

Suppose an economy’s entire output is cars. in year 1, all manufacturers produce cars at $15,000 each; the real gdp is $300,000. in year 2, 20 cars are produced at $16,000 each. what is the real gdp in year 2?

Answer 1

The real GDP in the year 2 is $300,000.

Answer 2

Formula for the Real GDP:
RGDP = Quantity in the current year x Price of the output in the base year
The base year should be the 1st year:
RGDP 1 = $300,000, P 1 = $15,000
Q 1st = $300,000 : $15,000 = 20 cars
In the 2nd year we also have: Q 2nd = 20,produced at $16,000 each.
The Nominal GDP = 20 x $16,000 = $320,000 ( market value )
But the Real GDP = 20 x $15,000 = $300,000.
Answer: The real GDP in the year 2 is $300,000.