High School

In 2015, A country produced 20 kilos of apples and 30 kilos of bananas. Both fruits were used exclusively for final consumption and nothing else was produced. In 2015, a kilo of apples sold for $5 while a kilo of bananas sold for $10.


In 2016, the same country produced only 10 kilos of apples but produced 40 kilos of bananas. In 2016, prices were $6 per kilo of apples and $8 per kilo of bananas.


Using 2015 prices, economists estimate that potential GDP is $500 in 2016. The output gap in 2016 is


a. -$100


b. -$120


c. -$50


d. +$100


e. +$50

Answer :

The correct option is e) +$50. To calculate the output gap in 2016, we need to compare the potential GDP to the actual GDP. Potential GDP is estimated to be $500 in 2016.

To calculate the actual GDP, we need to find the value of the total output of both apples and bananas in 2016, using the prices from 2015.

In 2016, the country produced 10 kilos of apples and 40 kilos of bananas. Using the 2015 prices, the value of the apples produced in 2016 would be 10 kilos * $5 per kilo = $50. The value of the bananas produced in 2016 would be 40 kilos * $10 per kilo = $400.

Therefore, the actual GDP in 2016 would be $50 + $400 = $450.

To calculate the output gap, we subtract the actual GDP from the potential GDP.

Output gap = Potential GDP - Actual GDP

Output gap = $500 - $450

Output gap = $50

Therefore, the output gap in 2016 is $50.

Learn more about potential GDP here:

https://brainly.com/question/13824314

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