A simple economy produces only 3 goods: pizza, video games and candy. The prices and quantities...

A simple economy produces only 3 goods: pizza, video games and candy. The prices and quantities produced for three consecutive years are given below:

Item	2011	2011_	2012	2012_	2013	2013_
	Quantity	Price	Quantity	Price	Quantity	Price
Pizza	100	$0.50	125	$0.50	125	$0.60
Video Games	75	$1.00	85	$1.00	85	$1.25
Candy	20	$5.00	30	$5.00	30	$6.00

d. Calculate real GDP for all years in chained-2012 dollars, that is using 2012 as the arbitrary reference year! (This will involve multiple steps - show your final results for each year clearly.)

Solutions

Expert Solution

(d) The real GDP has base year of 2012, meaning that the GDP would be calculated with the prices of 2012 for all years (to reflect the changes in quantity only). The calculations would be as below.

For the year 2011, the GDP would be as or or or dollars.

For the year 2012, the GDP would be as or or or dollars. As can be noted, since 2012 is the base year, the nominal GDP in this year would be equal to the real GDP.

For the year 2013, the GDP would be as or or or dollars.

Comparing year 2011 and 2012, while the prices are the same, the production amount is more in 2012, which is reflected in the RGDP. Comparing year 2012 and 2013, since only the prices are different, the RGDP is same for both year, since RGDP reflects changes in the production amount.

Rahul Sunny answered 11 months ago

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