For the next nine questions, use the data in the following tables for an economy that produces only two things, bread and computers. Assume that all production is consumed in each year:

Year 1

Good Quantity Price

Bread 30 $10

Computers 10 $50

Year 2

Good Quantity Price

Bread 40 $15

Computers 15 $60

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

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

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

$1,150

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

$1,500

Explanation:

When you use the chain weighted method, you must multiply the base year's price times the current quantities to determine real GDP.

Year 1 Year 2

Quantity Price Quantity Price

Bread 30 $10 40 $15

Computers 10 $50 15 $60

real GDP in year 2 using year 1 as base = (15 x $50) + (40 x $10) = $750 + $400 = $1,150

real GDP in year 2 using year 2 as base = (15 x $60) + (40 x $15) = $900 + $600 = $1,500