Question

In a stylized economy 1000 units of product X were sold for the price 10 dollars/unit meanwhile 1000 units of product Y were sold for the price 20 dollars/unit in 2005. In the same economy 1200 units of product X were sold for the price 20 dollars/unit meanwhile 1000 units of product Y were sold for the price 25 dollars/unit in 2010. Calculate nominal GDP, real GDP and the GDP deflator for 2005 and 2010 assuming the base year is 2005.

Answer 1

NOMINAL GDP:-

FOR 2005

NOMINAL GDP = (PRICE OF X * QUANTITY OF X) + (PRICE OF Y * QUANTITY OF Y)
or, NOMINAL GDP = (1000*10) + (1000*20) = 10000 + 20000 = 30000 DOLLARS

FOR 2010

NOMINAL GDP = (PRICE OF X * QUANTITY OF X) + (PRICE OF Y * QUANTITY OF Y)
or, NOMINAL GDP = (1200*20) + (1000*25) = 24000 + 25000 = 49000 DOLLARS

REAL GDP :-

REAL GDP = QUANTITY OF CURRENT YEAR (i.e. of 2010) * PRICE OF BASE YEAR (i.e. of 2005)
REAL GDP = (1200 * 10) + (1000 * 20) = 12000 + 20000 = 32000 DOLLARS

GDP DEFRATOR TAKING 2005 AS BASE YEAR IS NOMINAL GDP OF 2010/REAL GDP = 49000/32000 = 1.53