Suppose that annual output in year 1 in a 3-good economy is 3 quarts of ice cream, 1 bottle of shampoo, and 3 jars of peanut butter. In year 2, the output mix changes to 5 quarts of ice cream, 2 bottles of shampoo, and 2 jars of peanut butter. If the prices in both years are $4 per quart for ice cream, $3 per bottle of shampoo, and $2 per jar of peanut butter
1. What was the economy’s GDP in year 1?
2. What was its GDP in year 2?
Answer:
1. The economy's GDP in year 1 is $21
2. The economy's GDP in year 2 is $30
Explanation: Year 1- $4 x 3 quarts of ice cream + $3 x 1 bottle shampoo + $2 x 3 jars PB = $21 is the GDP for year 1. Year 2- $4 x 5 quart of ice cream + $3 x 2 bottles of shampoo + $2 x 2 jars of PB = $30 is the GDP for year 2
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