Question:
Consider an economy where only three products x,y, and z are produced and sold for the prices indicated below:
Product;(Base year price);(Current year price);(Current year production)
X; $1; $2; 200
Y; $4; $5; 50
Z; $5; $6; 100
A. What are the values of nominal GDP and real GDP in the current year?
B. Explain the difference between the two answers in a.
C. What is the major advantage of the real GDP measure? The disadvantage?
D. Construct a price index giving all products equal weight. What is the rate of inflation?