Ritzland produces only one good. 10,000 units of the good were produced in Ritzland during a certain year and were sold at $42 per unit. The price of each unit of the good two years back was $37
i) Find the real and nominal GDP of Ritzland taking $37 as the base price.
ii) Calculate the GDP deflator for Ritzland for the year in question.
i) Real GDP is the total value of a country's output using base year prices. In this case, real GDP is 10,000 × $37 = $370,000. Nominal GDP is the total value of a country's output at current price. In this case, it is 10,000 × 42 = $420,000.
ii) GDP deflator is the ratio of nominal GDP to real GDP. In this case, it is
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