Only three goods are produced in an economy in the following amounts: A = 10, B = 30, C = 5. The current year per-unit prices of these three goods are A = $2, B = $3, and C = $1. If the per-unit prices of the three goods were each $1 in a base year used to construct a GDP price index, then the GDP price index in the current year is:

a. 255.5.
b. 100.
c. 39.3.
d. 205.5.

The GDP price index in the current year is 255.5.

The GDP price index is the ratio of nominal GDP to real GDP. It is used to determine the inflation rate in an economy.

GDP price index = (Nominal GDP / Real GDP) x 100

Nominal GDP is GDP calculated using the current prices in an economy

Nominal GDP = (10 x $2) + (30 x $3) + (5 x $1)

$20 + $90 + 5 = $115

Real GDP is GDP calculated using base year prices in an economy

Real GDP = (10 x $1) + (30 x $1) + (5 x $1)

$10 + $30 + $5 = $45

GDP price index = ($115 / $45) x 100

= 255.5

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The correct answer is option (a).

Explanation:

According to the scenario, the computation of the given data are as follows:

We can calculate the GDP price index by using following formula:

GDP Price index = (Nominal GDP ÷ Real GDP) × 100

Where, Nominal GDP = 10 × $2 + 30 × $3 + 5 × $1

= $20 + $90 + $5

= $115

And, Real GDP = 10 × $1 + 30 × $1 + 5 × $1

= $45

By putting the value, we get

GDP price index = ( $115 ÷ 45 ) × 100

= 2.5556 × 100

= 255.56

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