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31 December, 06:45

Imagine that an economy produces two goods, flashlights and fishing lures. In 2015, the economy produced 70 flashlights and 40 fishing lures, and the prices of flashlights and fishing lures were $5 and $12, respectively. In 2016, the economy produced 85 flashlights and 50 fishing lures, and the prices of flashlights and fishing lures were $7 and $15, respectively.

Based on the information in Scenario 1, real GDP grew by about

A) $830

B) $1,025

C) $1,090

D) $1,345

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Answers (1)
  1. 31 December, 06:58
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    B) $1,025

    Explanation:

    Gross domestic product is the total output produced by an economy within a given period which is usually a year.

    Real GDP calculates the GDP without the effects of inflation.

    To calculate real GDP, a base year price is used.

    In this question, the base year prices would be the 2015 prices.

    GDP in 2015 = (70 * $5) + (40 * $12) = $830

    Real GDP in 2016 = (85 * $5) + (50 * 12) = $1,025.

    Real GDP grew by : $1025 - $830 = $195
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