Question

A tiny economy is producing just two goods, apples and socks.

a. In 2012, 400 kilos of apples were grown and sold at $4.50 per kilo and 300 pairs of socks were sewn and sold at $2.50 per pair. Calculate the country's (nominal) GDP in 2012.
b. In 2015, 480 kilos of apples were grown and sold at $4.75 per kilo and 320 pairs of socks were sewn and sold at $2.95 per pair. Calculate the country's real GDP in 2015 (take 2012 as the base year).

Answer 1

In 2012, the country's (nominal) GDP is $2,550. In 2015, the country's real GDP, using 2012 as the base year, is $3,080.

Step-by-step explanation:

To calculate the country's (nominal) GDP in 2012, we need to multiply the quantity of each good produced by its respective price and then sum up the values. In this case, 400 kilos of apples were sold at $4.50 per kilo, so the total value of apples is 400 * $4.50 = $1,800. Similarly, 300 pairs of socks were sold at $2.50 per pair, so the total value of socks is 300 * $2.50 = $750. Adding the values of apples and socks, the GDP in 2012 is $1,800 + $750 = $2,550.

To calculate the country's real GDP in 2015, we use 2012 as the base year. We multiply the quantity of each good produced in 2015 by the prices from 2012 and then sum up the values. In this case, 480 kilos of apples were sold at $4.75 per kilo in 2015, so the total value of apples is 480 * $4.50 = $2,280. Similarly, 320 pairs of socks were sold at $2.95 per pair in 2015, so the total value of socks is 320 * $2.50 = $800. Adding the values of apples and socks, the real GDP in 2015, using 2012 as the base year, is $2,280 + $800 = $3,080.