Assume that computers and oil are the only goods produced in an economy.In 2004, 40 computers and 10,000 litres of oil were produced. Computer prices in 2004 were $1500 while price of oil was $2 per litre.In 2005, computer production went up to 80 but its price fell to $500. Oil production increased to 12,000 litres and its price increased to $5 per litre.Using 2004 as the base year, the value of real GDP in 2005 is:Group of answer choices$120,000$180,000$144,000$150,000
Question
Assume that computers and oil are the only goods produced in an economy.In 2004, 40 computers and 10,000 litres of oil were produced. Computer prices in 2004 were 2 per litre.In 2005, computer production went up to 80 but its price fell to 5 per litre.Using 2004 as the base year, the value of real GDP in 2005 is:Group of answer choices180,000150,000
Solution
To calculate the real GDP, we use the prices from the base year (2004) and the quantities from the year we are interested in (2005).
In 2005, 80 computers were produced and 12,000 litres of oil were produced.
Using 2004 prices, the value of the computers produced in 2005 is 80 computers * 120,000.
Using 2004 prices, the value of the oil produced in 2005 is 12,000 litres * 24,000.
Adding these together, the real GDP in 2005 (using 2004 as the base year) is 24,000 = $144,000.
So, the correct answer is $144,000.
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