Question

Problem 27-6 (Algo) Suppose that in 1984 the total output in a single-good economy was 10,000 buckets of chicken. Also assume that in 1984 each bucket of chicken was priced at $15. Finally, assume that in 2005 the price per bucket of chicken was $20 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 =

Answer 1

ANSWER:

A) GDP price index = (price of chicken in 1984 / price of chicken in 2005) * 100 = (15 / 20) * 100 = 0.75 * 100 = 75

B) Price level change = (price of chicken in 2005 / price of chicken in 1984) * 100 - 1 = (20 / 15) - 1 = 1.3333 - 1 = 0.3333 or 33.33%

C) Real gdp in 1984 = price of chicken in 2005 * quantity of chicken in 1984 = $20 * 10,000 = $200,000

Real gdp in 2005 = price of chicken in 2005 * quantity of chicken in 2005 = $20 * 22,000 = $440,000