Question

Suppose an economy produces only burgers and bags of fries. In 2010, 4000 burgers are sold at $3 each and 6000 bags of fires are sold at $1.50 each.

In 2008, the base year, burgers sold for $2.50 each and bags of fries sold for $2 each.

a. nominal GDP is $22,000 real GDP is $21,000, and the GDP deflator is 95.45.

b. nominal GDP is $22,000, real GDP is $21,000, and the GDP deflator is 104.77.

c. nominal GDP is $21,000, real GDP is $22,000, and the GDP deflator is 95.45.

d. nominal GDP is $21,00, real GDP is $22,000, and the GDP deflator is 104.77.

Answer 1

Option (C) is correct.

Step-by-step explanation:

Nominal GDP:

= (No. of burgers sold × Selling price of each) + (No. of fries sold × Selling price of each)

= (4000 × 3) + (6000 × 1.5)

= 12,000 + 9,000

= $21,000

Real GDP (in 2008 prices)

= (No. of burgers sold × Selling price of each) + (No. of fries sold × Selling price of each)

= (4,000 × $2.50) + (6000 × $2)

= 10,000 + 12,000

= $22,000

GDP deflator:

= (Nominal GDP ÷ Real GDP) × 100

= (21000 ÷ 22000) × 100

= 95.45