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Year Price of pizzas Quantity of pizzas Price of calzones Quantity of calzones 2000 15 15 15 15...

Question:

Year Price of pizzas Quantity of pizzas Price of calzones Quantity of calzones
2000 15 15 15 15
2019 45 45 45 60

1. Calculate the real GDP for 2000.

2. Calculate the real GDP for 2019.

3. Calculate the growth in real output over the period.

Real GDP:

Real GDP is the adjusted market value of all goods and services produced for the period. It takes into consideration the inflation or deflation of the economy that causes the price change.

Answer and Explanation:

Question 1:

Let us compute the real GDP in 2000. We assume that 2000 is the base year

{eq}Real\:GDP = Price\:of\:pizzas (base) \times Quantity+ Price\:of\:calzones (base) \times quantity {/eq}

{eq}Real\:GDP = 15\times 15 + 15\times 15 {/eq}

{eq}Real\:GDP = 225 + 225 = 450 {/eq}

The real GDP in 2000 is $450.


Question 2:

Let us compute the real GDP in 2019. We use the price of the base year but use the quantity of the current year.

{eq}Real\:GDP = Price\:of\:pizzas(base) \times Quantity + Price\:of\:calzones (base) \times quantity {/eq}

{eq}Real\:GDP = 15\times 45 + 15\times 60 {/eq}

{eq}Real\:GDP = 675 + 900 = 1,575 {/eq}

The real GDP in 2019 is $1,575.


Question 3:

Let us compute the growth rate of real output.

{eq}Growth = Real\:GDP\:in\:2019 \div Real\:GDP\:in\:2000 - 1 {/eq}

{eq}Growth = 1,575 \div 450- 1 {/eq}

{eq}Growth = 3.5 - 1 = 2.5 {/eq}

The growth rate is 250%.


Learn more about this topic:

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Gross Domestic Product: How to Calculate Real GDP

from Economics 102: Macroeconomics

Chapter 5 / Lesson 6
91K

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