   Chapter 7, Problem 4WNG

Chapter
Section
Textbook Problem

In year 1, the prices of goods X, Y, and Z are $2,$4, and $6 per unit, respectively. In year 2, the prices of goods X, Y, and Z are$3, $4, and$7, respectively. In year 2, twice as many units of each good are produced as in year 1. In year 1, 20 units of X, 40 units of Y, and 60 units of Z are produced. If year 1 is the base year, what does Real GDP equal in year 2?

To determine

Estimate the value of Real GDP for year 1 and year 2.

Explanation

Table-1 shows the price and quantity for X, Y, and Z products:

Real GDP can be calculated using base year price and current year quantity. From Table-1, the Real GDP for year 1 and year 2 can be calculated using the following formula:

Real GDPYear 1=((Year1PriceX ×Year1QuantityX)+(Year1PriceY ×Year1QuantityY)+(Year1PriceZ ×Year1QuantityZ)

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