Country X produces only apples and bananas. The following table shows prices and quantities of both products in two years. Year 1 Year 2 Price Quantity Price Quantity Apples $1 100 $2 80 Bananas $2 50 $2 60 A. What is the Nominal Gross Domestic Product for Country X in Year 1? B. What is the Nominal Gross Domestic Product for Country X in Year 2? C. Assuming Year 1 is the base year, what is the Real Gross Domestic Product for Country X in Year 2? D. Based on your answer in part (c), has Country X experienced economic growth? Explain. E. Why should a country always use Real Gross Domestic Product when looking at its level of economic growth? Explain.
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Gross Domestic Product (GDP) is defined as the monetary value of all final goods and services produced in an economy within a given period of time, usually a year. It is used to estimate the growth of an economy.
It can be calculated as:
Nominal Gross Domestic Product is referred to as the gross domestic product which is evaluated at the current market prices.
Real Gross Domestic Product is referred to as an inflation adjusted measure which reflects the value of all the goods and services that are produced in an economy during a given year .
GDP deflator =
Where GDP deflator depicts the where price levels in the economy.
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