Consider an economy that produces only four types of fruit: apples, oranges, pineapples and bananas. In the base year (2012), the production and price data were as follows:
Fruit Quantity Price
Apples 3,000 bags $2 per bag
Bananas 6,000 bunches $3 per bunch
Pineapples 4,000 $1.5 per
Oranges 8,000 bags $4 per bag
In the current year (2015), the production and price data are as follows:
Fruit Quantity Price
Apples 4,000 bags $3 per bag
Bananas 14,000 bunches $2 per bunch
Pineapples 7,500 $2 per
Oranges 32,000 bags $5 per bag
(a) Calculate the nominal GDP in the current year and in the base year. What is the percentage increase since the base year?
(b) Calculate the real GDP in the current year and in the base year. By what percentage does real GDP increase from the base year to the current year?
(c) Find the GDP deflator for the current year and the base year. By what percentage does the price level change from the base year to the current year?
(d) Would you say that the percentage increase in nominal GDP in this economy since the base year is due more to increases in prices or increases in the physical volume of output?