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25 July, 18:50

Suppose that in year 1 an economy produces 100 golf balls that sell for $3 each and 75 pizzas that sell for $8 each. The next year the economy produces 110 golf balls that sell for $3.25 each and 80 pizzas that sell for $9 each. Look at the scenario Real GDP. The value of nominal GDP in years 1 and 2 respectively is: $900 and $1,077.50. $900 and $990. $180,000 and $257,400. $1,000 and $1,005.

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  1. 25 July, 18:52
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    The value of nominal GDP in years 1 and 2 respectively is:

    $900 and $1,077.50.

    Explanation:

    real GDP is based on the prices of a base year and it is affected by the total output of goods and services, not the nominal value of the goods and services.

    real GDP year 1 = ($3 x 100 balls) + ($8 x 75 pizzas) = $900

    real GDP year 2 = ($3 x 110 balls) + ($8 x 80 pizzas) = $970

    nominal GDP year 1 = ($3 x 100 balls) + ($8 x 75 pizzas) = $900

    nominal GDP year 2 = ($3.25 x 110 balls) + ($9 x 80 pizzas) = $1,077.50
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