Suppose an economy’s entire output is cars. In Year 1, all manufacturers produce cars at $15,000 each; the real GDP is $300,000. In Year 2, 20 cars are produced at $16,000 each. What is the real GDP in Year 2?

Question

$20,000

$300,000

$280,000

$320,000

Answer 1

To calculate the real GDP in Year 2, we need to consider how many cars are produced and their price.

In Year 2:

• 20 cars are produced
• Each car is priced at $16,000

To find the total output (real GDP) for Year 2, we multiply the number of cars produced by their price:

Total output (real GDP) = Number of cars × Price per car

Total output (real GDP) = 20 cars × $16,000 per car = $320,000

Therefore, the real GDP in Year 2 is $320,000.