Suppose that in 1984 the total output in a single-good economy was 7,000 buckets of chicken. Also suppose that in 1984 each bucket of chicken was priced at $10. Finally, assume that in 2005 the price per bucket of chicken was $16 and that 22,000 buckets were produced. Instructions: In part a, enter your answer as an index number rounded to 1 decimal place. In parts b-c, enter your answers as whole numbers. a. What is the GDP price index for 1984, using 2005 as the base year? . b. By what percentage did the price level, as measured by this index, rise between 1984 and 2005? percent. c. What were the amounts of real GDP in 1984 and 2005? In 1984, real GDP = $ . In 2005, real GDP = $ .
Question
Suppose that in 1984 the total output in a single-good economy was 7,000 buckets of chicken. Also suppose that in 1984 each bucket of chicken was priced at 16 and that 22,000 buckets were produced. Instructions: In part a, enter your answer as an index number rounded to 1 decimal place. In parts b-c, enter your answers as whole numbers. a. What is the GDP price index for 1984, using 2005 as the base year? . b. By what percentage did the price level, as measured by this index, rise between 1984 and 2005? percent. c. What were the amounts of real GDP in 1984 and 2005? In 1984, real GDP = .
Solution
a. The GDP price index for 1984, using 2005 as the base year, is calculated as follows:
First, we need to find the price of the bucket of chicken in 1984 in terms of 2005 prices. Since the price in 2005 was 10 in 1984, the price relative (or price index) is (10/16)*100 = 62.5.
b. The percentage rise in the price level between 1984 and 2005 is calculated as follows:
The price rose from 16 in 2005. So, the percentage increase is ((16-10)/10)*100 = 60 percent.
c. The real GDP is the total output produced in a year, valued at the prices in a base year.
In 1984, the real GDP (using 2005 as the base year) is the quantity produced in 1984 times the price in 2005. So, real GDP in 1984 is 7000 buckets * 112,000.
In 2005, the real GDP is the quantity produced in 2005 times the price in 2005. So, real GDP in 2005 is 22000 buckets * 352,000.
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