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
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**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) \[ \
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