ID: B Exhibit 7-1 1990 2012 Goods Quantities 1990 Prices Quantities 2012 Prices

Question

ID: B Exhibit 7-1 1990 2012 Goods Quantities 1990 Prices Quantities 2012 Prices 20 20 15 $0.50 0.80 $4.00 papayas 10 1.00 fish 15 S0.60 skits $4.00 11. Refer to Exhibit 7-2. Assuming that 1990 is the base year, Real GDP in 2012 is b. $86. c. $92 d. $49 e. not possible to calculate without the CPI 12. Refer to Exhibit 7-2. GDP in 1990 is a. $92 b. $49. c. $31 d. $86. e. impossible to calculate without the CPI -13. Refer to Exhibit 7-2. GDP in 2012 is a. $51. b. $86. c. $92 d. $49. e. not possible to calculate without the CPI

Explanation / Answer

GDP is the value of goods and services produced within a country.

In this question it is given that there are only three goods in the country i.e. Papayas, fish and skirt

value of good produced = quantity produced*price

a) Real GDP - It is the value of goods and service proced within year in country taking inflation in consideration. While calculating Real GDP we take the price of base year not the actual year

Real GDP in 2012 = (Price of papayas in 1990*Quantity produced in 2012) + (Price of fish in 1990*Quantity produced in 2012) + (Price of skirts in 1990*Quantity produced in 2012) = (20*1)+(20*0.6)+(15*4) = $92

Real GDP in 2012 = $92 i.e. option 'c'

b) GDP in 1990 = (Price of papayas in 1990*Quantity produced in 1990) + (Price of fish in 1990*Quantity produced in 1990) + (Price of skirts in 1990*Quantity produced in 1990) = (10*1)+(15*0.6)+(8*4) = $51

GDP in 1990 is $51 i.e. option 'c'

c) GDP in 2012 = (Price of papayas in 2012*Quantity produced in 2012) + (Price of fish in 2012*Quantity produced in 2012) + (Price of skirts in 2012*Quantity produced in 2012) = (20*0.5)+(20*0.8)+(15*4) = $86

GDP in 2012 is $86 i.e. option 'b'

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