Question

Suppose that salsa sells for $4 in year 1 and $5 in year 2. A bag of tortilla chips sells for $6 in year 1 and $5 in year 2. Further assume that year 1 is the base year. If 200 jars of salsa and 400 bags of tortilla chips are sold in year 2, the real gdp is $___.

Answer 1

$3,200

Step-by-step explanation:

With 200 jars of salsa and 400 bags of tortilla chips sold in year 2,

Nominal GDP in year 2, is the value of total sales using year 2 prices

Therefore, Nominal GDP = (200 * 5) + (400 * 5)

= 1,000 + 2,000

= $3,000.

Real GDP in year 2 is the value of total sales using the prices of the base year (year 1, in this case)

Therefore, real GDP = (200 * 4) + (400 * 6)

= 800 + 2,400

= $3,200.