1. GDP
Calculations

2. Real GDP is the preferred measure of production Base Year: Year 1
Production Prices
Good Year 1 Year Year 1 Year 2
Goat Milk
Bananas
The real GDP in Year 1 is _____. The real GDP in Year 2 is _____. Use Year 1 as the base year.
600; (b) 600;630
(c) 640; (d) 640; 630
Answer: (d)
Real GDP for Year 1 = (200*2.00)+(80*3.00)=640.
Real GDP for Year 2 = (180*2.00)+(90*3.00)=630

3. Real GDP is the preferred measure of production Base Year: Year 2
Production Prices
Good Year 1 Year Year 1 Year 2
Goat Milk
Bananas
The real GDP in Year 1 is ____. The real GDP in Year 2 is ___. Use Year 2 as the base year.
736; (b) 736; 720
(c) 640; (d) 640; 720
Answer: (b)
Real GDP for Year 1 = (200*2.40)+(80*3.20)=736
Real GDP for Year 2 = (180*2.40)+(90*3.20)=720