Question 2.4: Assume 2014 is the base year. Calculate Real GDP for 2015 (Closed

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Question 2.4: Assume 2014 is the base year. Calculate Real GDP for 2015 (Closed Economy) Suppose there are only three goods in this closed economy that does not trade with other countries energy drinks (Consumption), computers (investment), and public highways (Govenment). Over a two year period, the amount spent on these items have changed. Based on information in the table below determine nominal and real GDP for this simple economy Consumption (C)Investment(1)Government (G) 2015 Real GDP Check Answer

Explanation / Answer

Answer:

Real GDP (gross domestic product): it is the sum of values of all the final goods and services (consumption, investments, government spending and net exports) produced by an economy adjusted to the inflation (price change) means the values are calculated at the prices of base year.

Real GDP = consumption + investments + government + net exports

Calculating real GDP of 2015:

Real GDP = consumption + investments + government

*closed economy so no net exports

Value of good or service = quantity * price of base year (2014)

Consumption = 45 * $2.50 = $112.5

Investments = 25 *$ 1.50 = $37.5

Government = 30 * $ 2.00 = $60.00

Real GDP = $112.50 + $37.5 + $60

Real GDP = $210

*hope everything is clear to you. If you have any doubts feel free to ask.

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