Consider an economy that produces only two goods, soft drinks and hamburgers

Economics Jan 18, 2021

Consider an economy that produces only two goods, soft drinks and hamburgers. The following price and quantity statistics are available about this economy:

Year

Hamburgers

Soft Drinks

2015

Price = $2.00; Quantity = 2000

Price = $0.50; Quantity = 2000

2016

Price = $2.25; Quantity = 2000

Price = $0.50; Quantity = 2200

Taking 2015 as the base year, find the growth rate of the constant-price GDP in 2016. Round to the nearest whole percent and enter just the number with no symbols.

Expert Solution

Computation of Growth Rate of the Constant-Price GDP in 2016:

RGDP 2015 = (2000*$2) + (2000*$0.5)

= $4,000 + $1,000

= $5,000

RGDP in year 2016 is calculated on the base year prices that is 2015 year prices:

RGDP 2016 = (2000*$2) + (2200*$0.5)

= $4,000 + $1,100

= $5,100

Growth Rate of GDP = (GDP 2016 - GDP 2015)/GDP 2015 * 100

= ($5,100 - $5,000)/$5,000 * 100

Growth Rate of GDP = 2%

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