Question

	2001		2006
Good	Price	Quantity	price	Quantity
Shampoo	$2	15	$4	20
DVD	$210	10	$250	10
Drives	$200	10	$250	10
Books	40	5	50	4
Milk	3	10	4	3
Candy	1	40	2	20

Assuming a 2001 base year:

A. What is nominal GDP for 2001 and 2006?

B. What is real GDP for 2001 and 2006?

8-9 In the table if 2001 is the base year, what is the price index for 2001? For 2006? (round decimal fractions to the nearest tenth).

Answer 1

a) Nominal GDP 2001 = Sum of products of price and quantities of all the products using 2001 prices

= 2*15 + 210*10 + 200*10 + 40*5 + 3*10 + 1*40

= $4400

Nominal GDP 2006 = Sum of products of price and quantities of all the products using 2006 prices

= 4*20 + 250*10 + 250*10 + 50*4 + 4*3 + 2*20

= $5332

b) Real GDP 2001 = Sum of products of price and quantities of all the products using 2001 prices

= $4400

Real GDP 2006 = Sum of products of price and quantities of all the products using 2001 prices but 2006 quantities

= 20*2 + 10*210 + 10*200 + 4*40 + 3*3 + 20*1

= $4329

c) Price index for 2001 = Nominal GDP 2001/Real GDP 2001 = 4400/4400 = 100

Price index for 2006 = Nominal GDP 2006/Real GDP 2006 = 5332/4329 = 123.2