Question

An economy produces 10X, 20Y, and 30Z in a year. Base-year prices for these goods are $1, $2, and $3, respectively. Current-year prices for these goods are $2, $3, and $4, respectively. What is Real GDP?

a. $180
b. $200
c. $140
d. $240
e. none of the above

Answer 1

Answer: $140

Step-by-step explanation:

To solve this, we need to calculate the inflation rate first. This will be:

= (Current year price - base year price) / (Base year price)

For Product X, will be:

= ($2 - $1) / $1

= 1

For Product Y, this will be:

= ($3 - $2) / $2

= $1/$2

= 0.5

For Product Z, this will be:

= ($4 - $3) / $3

= $1/$3

= 0.33

Then, the real GDP will be the Base year of all the products divided by their inflation rate. This will be:

= (10/1) + (20 / 0.5) + (30 / 0.33)

= 10 + 40 + 90

= 140