Assume that all production is consumed in each year: Year 1 Good Bread Computers

Question

Assume that all production is consumed in each year: Year 1 Good Bread Computers 10 Year 2 Good Bread Computers 15 Quantity Price $10 $50 30 Quantity Price $15 $60 40 A. B. C. Using the chain weighted method, approximately how much did real GDP grow between year 1 and year 2? [ A. 87.5% B. 43.75% C. 43.3% D. None of the options listed is correct ] Using the chain weighted method, and selecting year 1 as a base, what is real GDP in year 2? (use two decimals) Using the chain weighted method, and selecting year 2 as a base, what is real GDP in year 1? (use 2 decimals)

Explanation / Answer

Solution:

1) Solution: 43.3%

Working:

Good Quantity Price

Bread 30 15 450

Computers 10 60 600

1050

Good Quantity Price

Bread 40 15 600

Computers 15 60 900

1500

=(1500 - 1050) / 1050 = 0.42857

Good Quantity Price

Bread 30 10 300

Computers 10 50 500

800

Good Quantity Price

Bread 40 10 400

Computers 15 50 750

1150

= (1150-800) / 800 = 0.4375

Now, 0.42857 + 0.4275 / 2 = 0.433 = 43.3%

2) Using the chain weighted method, and selecting year 1 as a base, what is real GDP in year 2?

Solution: $1146.42

Working: 1.43 * 800 = 1146.22

3) Using the chain weighted method, and selecting year 2 as a base, what is real GDP in year 1?

Solution: $1046.73

Working: 1500 / 1.43 = 1046.73

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