Assume an economy that is producing only one product. Output and price data for

Question

Assume an economy that is producing only one product. Output and price data for a three-year period are as follows. Answer the next question(s) on the basis of these data. Refer to the above data. If year 2 is chosen as the base year, the price index for year one is 80. 100. 120. 20. Refer to the above data. The nominal GDP for year 3 is: 125 percent higher than the nominal GDP for year 1. 50 percent higher than the nominal GDP for year 1. $120. $30. Refer to the above data. If year 2 is chosen as the base year, real GDP for year 1 is: $25. $100. $20. $80. Refer to the above data. If year 2 is chosen for the base year, in year 3 nominal GDP and real GDP, respectively, are: $180 and $30. $30 and $5. $180 and $120. $120 and $100. Refer to the above data. If year 2 is chosen as the base year, in years 1 and 3 the price index values, respectively, are: 4 and 6. 6 and 4. 120 and 100. 100 and 150.

Explanation / Answer

1 )Price Index = (20*4 ) / ( 25*4) * 100

= 80

Answer is Option A

2) Nominal GDP of year 1 = 20*4 = 80

  Nominal GDP of year 2 = 25*4 = 100

Nominal GDP of year 3 = 30*6 = 180

Answer = Nominal GDP of year 3 is 125 % higher than that of year 1

Option A

3)  Nominal GDP of year 1 = 80

base year is year 2

Real GDP = no of units in year 1 * price in year 2 = 80

Answer is Option D

4) base year is 2

Nominal GDP of year 3 = 30*6 = 180

Real GDP of year 3 = 30*4 = 120

Answer is Option C

5)year 2 is base year

Price index values for year 1 = 4

Price index values for year 3 = 6

Answer is Option A

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FInal Answers

1 . Option A

2 . Option A

3. Option D

4. Option C

5. Option A

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