0/1 Question 5 In the country of Mainia, only cranberries and maple syrup are produced. In 2006, 50 units of cranberries are sold at $20 per unit, and 100 units of maple syrup are sold at $10 per unit. The price of cranberries was $10 per unit and the price of maple syrup was $15 per unit in 2005, which is the base year. For 2006, a. nominal GDP is $2,000, real GDP is $2,000, and the GDP deflator is 100. b. nominal GDP is $2,000, real GDP is $2,500, and the GDP deflator is 125. c. nominal GDP is $2,500, real GDP is $2,000, and the GDP deflator is 83.3. Selected:d. None of the above is correct.

A. Nominal GDP is $2,000, real GDP is $2,000 and GDP deflator is 100.

Explanation:

Nominal GDP is the the total value of goods produced in a country in a given time period and valued at the current market price i. e not adjusted for inflation.

Here to calculate nominal GDP for Mainia in 2006, the total quantity of goods produced in the current year (2006) will be multiply by the current market price.

Cranberries Maple Syrups Total

50 units 100 units

$20 $10

$1,000 $1,000 $2,000

In contrast, Real GDP is measured using the base year price. The reason is to adjust for inflation which might have occurred between the two years.

Here to calculate real GDP for Mainia in 2006, the total quantity of goods produced in the current year (2006) will be multiply by the base year price (2005):

Cranberries Maple Syrups Total

50 units 100 units

$10 $15

$500 $1,500 $2,000

GDP deflator measures the movement in value of goods and services produced in the current year in relation to the base year value.

Here is the formula:

GDP deflator = Nominal GDP x 100

Real GDP

GDP deflator = $2,000 x 100

$2,000

GDP deflator = 100