Question

Table 7-8

Year	Guns Produced	Price of Guns	Butter Produced	Price of Butter
2002	80	$5	40	$4
2009	90	6	60	10

Consider the following data for Tyrovia, a country that produces only two products: guns and butter.

a. Refer to Table 7-8. Real GDP for Tyrovia for 2009 using 2002 as the base year equals

A) $1,140.

B) $880.

C) $690.

D) $560.

b. Refer to Table 7-8. Nominal GDP for Tyrovia in 2009 equals

A) $1,140.

B) $880.

C) $690.

D) $560.

Answer 1

Answer
a)
real GDP=sum of (current year quantity * base year prices)
real GDP in 2009=90*5+60*4
=690
the real GDP is $690
option C

b)
Nominal GDP =sum of (current year prices *current year quantity)
NGDP in 2009=90*6+60*10
=1140
the NGDP is $1140
Option A