Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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chain weighted
Transcribed Image Text:Quantity produced (in millions of bushels):
Apples
Oranges
2020
30
18
2021
33
21
The prices of apples and oranges per bushel in Fruitopia are:
Prices (in dollars per bushel):
Apples
Oranges
2020
4
2021
3
5
Transcribed Image Text:6. Due to problems with real GDP, the Bureau of Economic Analysis uses chain-weighted real
GDP.
How to calculate chain-weighted GDP:
1. Value the output in 2020 at prices from 2020 (nominal GDP in 2020).
2. Value the output in 2021 at prices from 2020 (real GDP in 2021 with a base year of 2020).
3. Calculate the percent change in GDP at 2020 prices using step (1) and step (2).
4. Value the output in 2020 at prices from 2021.
5. Value the output in 2021 at prices from 2021 (nominal GDP in 2021).
6. Calculate the percent change in GDP at 2021 prices using step (4) and step (5).
7. Average the percent change in GDP in 2020 prices (from step (3)) and the percent change in
GDP in 2021 prices (from step (6)).
8. To compute chain-weighted GDP in 2021, take real GDP in 2020 and multiply by one plus the
percentage change you found in step (7).
Using the information from Problem 1 about the economy of Fruitopia, compute chain-weighted
real GDP in 2021.
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