Question

1. If exports are $500, GDP is $8000, government purchases are $1200, imports are $700, and investment is $800, then consumption is equal to?

2. The country of Batavia produces only chocolates and watches. Below is a table with recent information on Batavia production and prices. The base year is 2008.

Prices and Quantities

Year	Price of A Box of Chocolates	Boxes of Chocolates	Price of Watches	Quantity of Watches
2008	$4	100	$50	10
2009	$5	90	$50	15
2010	$5	100	$60	15
2011	$6	80	$65	12

Compute Real GDP for 2011.

Answer 1

Answer : 1) GDP = Consumption + Investment + Government spending + (Export - Import)

By putting all given values in above formula we get,

8000 = Consumption + 800 + 1200 + (500 - 700)

=> 8000 = Consumption + 1800

=> Consumption = 8000 - 1800

=> Consumption = 6200

Therefore, here the Consumption is $6,200.

2) Real GDP = Base year price level * Current year quantity level.

Here the base year is 2008.

Real GDP of 2011 = (4 * 80) + (50 * 12) = 320 + 600

=> Real GDP of 2011 = 920

Therefore, here in 2011 the real GDP is $920.