Question 2: Suppose that a simple economy produces only four goods and services: sweaters, CDs, sugar, and soft drinks. Assume one half of the sugar is used in making the soft drinks and the other half of the sugar is purchased by households. Product Quantity Price 50 $15.00 10 10.00 200 0.90 400 0.75 a. Calculate nominal GDP for this simple economy. b. Assume that compared to the base year, prices of sweaters and soft drinks increased by 50% while prices of others are unchanged. Calculate real GDP and GDP deflator. Sweaters CDs Sugar Soft drinks

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The theory of absolute advantage was given by Adam Smith in the year 1776.