A simple economy produces two goods, Corn Bread and Video Games. Price and quantity data are as follows: Production and Prices in Year 1 (Base year) Quantity 125 600 Product Corn Bread Video Games Price Per Unit Production and Prices in Year 2 Quantity 156.25 900.00 Product Corn Bread Video Games $2.00 $60.00 Price Per Unit $3.00 $120.00

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
**Understanding GDP Calculation Using a Simple Economy**

In our example, we have a simple economy that produces two goods: Corn Bread and Video Games. Let's explore the production and prices of these items over two different years. We will use this information to calculate both the nominal GDP and the real GDP for Year 2.

### Production and Prices in Year 1 (Base Year)

| **Product**    | **Quantity** | **Price Per Unit** |
|-----------------|--------------|--------------------|
| Corn Bread      | 125          | $2.00              |
| Video Games     | 600          | $60.00             |

### Production and Prices in Year 2

| **Product**    | **Quantity** | **Price Per Unit** |
|-----------------|--------------|--------------------|
| Corn Bread      | 156.25       | $3.00              |
| Video Games     | 900.00       | $120.00            |

### Calculating Nominal GDP for Year 2

Nominal GDP for Year 2 is calculated by summing the total dollar value of all goods produced in Year 2 at the prices of Year 2.

- **Corn Bread**: Quantity = 156.25, Price = $3.00  
  \[ \text{Total Value} = 156.25 \times 3.00 = \$468.75 \]

- **Video Games**: Quantity = 900.00, Price = $120.00  
  \[ \text{Total Value} = 900.00 \times 120.00 = \$108,000.00 \]

\[ \text{Nominal GDP in Year 2} = \$468.75 + \$108,000.00 = \$108,468.75 \]

### Calculating Real GDP for Year 2

Real GDP for Year 2 is calculated by summing the total dollar value of all goods produced in Year 2 at the base year (Year 1) prices, which removes the effects of inflation.

- **Corn Bread**: Quantity = 156.25, Price = $2.00 (base year price)  
  \[ \text{Total Value} = 156.25 \times 2.00 = \$312.50 \]

- **Video Games**: Quantity = 900.00, Price = $60.00 (base year price)  
  \[ \
Transcribed Image Text:**Understanding GDP Calculation Using a Simple Economy** In our example, we have a simple economy that produces two goods: Corn Bread and Video Games. Let's explore the production and prices of these items over two different years. We will use this information to calculate both the nominal GDP and the real GDP for Year 2. ### Production and Prices in Year 1 (Base Year) | **Product** | **Quantity** | **Price Per Unit** | |-----------------|--------------|--------------------| | Corn Bread | 125 | $2.00 | | Video Games | 600 | $60.00 | ### Production and Prices in Year 2 | **Product** | **Quantity** | **Price Per Unit** | |-----------------|--------------|--------------------| | Corn Bread | 156.25 | $3.00 | | Video Games | 900.00 | $120.00 | ### Calculating Nominal GDP for Year 2 Nominal GDP for Year 2 is calculated by summing the total dollar value of all goods produced in Year 2 at the prices of Year 2. - **Corn Bread**: Quantity = 156.25, Price = $3.00 \[ \text{Total Value} = 156.25 \times 3.00 = \$468.75 \] - **Video Games**: Quantity = 900.00, Price = $120.00 \[ \text{Total Value} = 900.00 \times 120.00 = \$108,000.00 \] \[ \text{Nominal GDP in Year 2} = \$468.75 + \$108,000.00 = \$108,468.75 \] ### Calculating Real GDP for Year 2 Real GDP for Year 2 is calculated by summing the total dollar value of all goods produced in Year 2 at the base year (Year 1) prices, which removes the effects of inflation. - **Corn Bread**: Quantity = 156.25, Price = $2.00 (base year price) \[ \text{Total Value} = 156.25 \times 2.00 = \$312.50 \] - **Video Games**: Quantity = 900.00, Price = $60.00 (base year price) \[ \
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 2 images

Blurred answer
Knowledge Booster
Bond
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education