Given that this is a simple economy, the simple GDP therefore will be given as: The sum total of all the products purchased in a given period by the households.
What is the calculation for Simple GDP?
The simple GDP of the economy described above is given as:
Product   Quantity  x  Prices ($) =  Revenue ($)
Sweaters  50       15       750
CDs       10       10       100
Sugar     200       0.9       180
Soft Drinks 400 Â Â Â Â Â Â 0.75 Â Â Â Â Â Â 300
Nominal GDP (Total Revenue) Â Â Â Â Â Â Â Â 1,330 Â
Hence the nominal GDP = $1,330
What is the GDP Deflator?
Recall that the price of key items on the list had increased by 50%, hence the deflator is:
The ratio of base year to current year =
805/1,330
= 1,652174
≈ 1.65.
What is Real GDP?
Real GDP is given as:
R = N/D
Where R = Real GDP
N = Nominal GDP
D = GDP Deflator
Hence,
R = 1,330/1.65
Real GDP = $806.060606061
≈ $806.06
Learn more about GDP at:
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