Question

Suppose that in 1994 the total output in a single-good economy was 10,000 buckets of chicken. Also suppose that in 1994 each bucket of chicken was priced at $15. Finally, assume that in 2015 the price per bucket of chicken was $20 and that 22,000 buckets were produced.

In parts a-b, enter your answer rounded to 1 decimal place. In part c, enter your answers as a whole number.

A.  What is the GDP price index for 1994, using 2015 as the base year?

B. By what percentage did the price level, as measured by this index, rise between 1994 and 2015?

C. What were the amounts of real GDP in 1994 and 2015?

In 1994, real GDP = $

In 2015, real GDP = $

Answer 1

Ans- Given that,

Output in 1994 = 10,000 buckets of chicken

Price in 1994 = $15

Output in 2015 = 22,000

Price in 2005 = $20(base year price)

Ans-a) GDP price index for year 1994,using 2015 as the base year

=Price of good in specific year/price of good in base year×100

=15/20×100=75

GDP price index for year 1994,using 2015 as the base year is 75.

Ans-b) Price level as measured by this index(above mentioned),rise between 1994 and 2015.

New price level is always 100.

Percentage change in Price level=new price level-original price level/price level in base year×100

=100-75/75×100=33.33

Ans-c) I am assuming 2015 is the base year because for this part nothing has given. I am taking 2015 as base year because in ths upper part(B) ,2015 is the base year.

Real GDP in 1994= quantity in 1994× base year price

= 10,000×20= $2,00,000

Real GDP in 2015=quantity in 2015×price in 2015(base year)

=22,000×20=$4,40,000