Assume that in year 1 an economy produces 1000 units of output and they sell for $100 a unit, on...

Question:

Assume that in year 1 an economy produces 1000 units of output and they sell for $100 a unit, on average. In year 2, the economy produces the same 1000 units of output, and sells it for $110 a unit, on average. Use year 1 prices to calculate real GDP in Year 1 and Year 2. What happened to real GDP between years 1 and 2? Why?

Gross Domestic Product:

Gross Domestic Product is a measure of the growth of an economy. Gross Domestic Product is the total goods and services produced in a geographical boundary within a particular period.

Answer and Explanation:

Real GDP = Current year quantity * Base year price

Real GDP in year 1 = 1,000 * 100

Real GDP in year 1 = 100,000

Real GDP in year 2 = 1000 * 100

Real GDP in year 2 = 100,000

Thus, the genuine GDP continues as before in light of the fact that despite the fact that the price expands, the yield doesn't change so there is no adjustment in genuine GDP.


Learn more about this topic:

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Gross Domestic Product: Definition and Components

from Economics 102: Macroeconomics

Chapter 4 / Lesson 3
61K

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