Question

An economy produces 10X, 20Y, and 30Z in a year. Base-year prices for these goods are $1, $2, and $3, respectively. Current-year prices for these goods are $2, $3, and $4, respectively. What is Real GDP

Answer 1

Answer:

$140

Explanation:

The computation of the real GDP is shown below:

For computing the real GDP first we have to determine the inflation rate

Inflation rate formula is

= (Current year price - base year price) ÷ (Base year price)

For Product X

= ($2 - $1) ÷ (1) = 1

For Product Y

= ($3 - $2) ÷ (2) = 0.5

For Product Z

= ($4 - $3) ÷ (3) = 0.33

Now the real GDP is

= (Base year price of X)÷ (Inflation rate) + (Base year price of Y)÷ (Inflation rate) + (Base year price of Z)÷ (Inflation rate)

= (10) ÷ (1) + (20) ÷ (0.5) + (30) ÷ (0.3333)

= 10 + 40 + 90

= $140