Posted: May 24th, 2016

Suppose that a very simple economy produces three goods: pizzas, haircuts and backpacks. Suppose the quantities produced and their corresponding prices for 2009 and 2013 are as shown in the table:

Use the information in the table to compute real GDP in the years 2011 and 2015. Calculate real GDP in 2015 assuming the base year is 2011. Real GDP is found by valuing GDP in a particular year using base year prices. When 2011 is the base year, real GDP for 2015 is found by multiplying 2011 prices by 2015 quantities and then adding the values up. Does the same calculation assume the base year is 2013? Compare and explain the two results.

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