Question: Consider an economy that produces only three types of fruit: apples, organs, and bananas. In the base year (a few years ago), the production and price data were as follows:

Fruit Quantity Price

Apples 3,000 bags $2 per bag

Bananas 6,000 bunches $3 per bunch

Oranges 8,000 bags $4 per bag

In the current year the production and price data are as follows:

Fruit Quantity Price

Apples 4,000 bags $3 per bag

Bananas 14,000 bunches $2 per bunch

Oranges 32,000 bags $5 per bag

a. Find nominal GDP in the current year and in the base year. What is the percentage increase since the base year?

b. Find real GDP in the current year and in the base year. By what percentage does real GDP increase from the base year to the current year?

c. Find the GDP deflator for the current year and the base year. By what percentage does the price level change from the base year to the current year?

d. Would you say that the percentage increase in nominal GDP in this economy since the base year is due more to increases in prices or increases in the physical volume of output?