1. Use the following information to answer the questions below:

Quantities Produced Prices
CDs Tennis Racquets CDs Tennis Racquets
Year 2004 100 200 20 110
Year 2005 120 210 22 120

a. Calculate real GDP using prices from 2004. By what percent did real GDP grow?

b. Calculate the value of the price index for GDP for 2005 using 2004 as the base year. By what percent did prices increase?

To calculate real GDP using prices from 2004, we need to multiply the quantities produced in each year by their corresponding prices from 2004.

a. Calculate real GDP using prices from 2004:
Year 2004: (100 CDs * $20) + (200 Tennis Racquets * $110) = $2,000 + $22,000 = $24,000
Year 2005: (120 CDs * $20) + (210 Tennis Racquets * $110) = $2,400 + $23,100 = $25,500

Real GDP growth rate: ((Real GDP in 2005 - Real GDP in 2004) / Real GDP in 2004) * 100
((25,500 - 24,000) / 24,000) * 100 = 6.25%

b. To calculate the value of the price index for GDP for 2005 using 2004 as the base year, we need to divide the GDP in each year by the GDP in the base year and multiply by 100.

Price index for GDP in 2005: (Real GDP in 2005 / Real GDP in 2004) * 100
(25,500 / 24,000) * 100 = 106.25%

The prices increased by 6.25%.

a. To calculate the real GDP using prices from 2004, we need to use the quantities produced in the corresponding year and multiply them by the prices of that year.

For CDs in 2004:
Real GDP = Quantity of CDs in 2004 * Price of CDs in 2004
Real GDP = 100 * 20 = 2000

For Tennis Racquets in 2004:
Real GDP = Quantity of Tennis Racquets in 2004 * Price of Tennis Racquets in 2004
Real GDP = 200 * 110 = 22000

Total Real GDP in 2004 = Real GDP for CDs + Real GDP for Tennis Racquets
Total Real GDP in 2004 = 2000 + 22000 = 24000

To calculate the percent growth in real GDP, we compare the real GDP in 2005 with the real GDP in 2004 and use the following formula:

Percent Growth = (Real GDP in 2005 - Real GDP in 2004) / Real GDP in 2004 * 100

For CDs:
Percent Growth = (120 * 20 - 100 * 20) / 100 * 20 * 100
Percent Growth = (2400 - 2000) / 2000 * 100
Percent Growth = 400 / 2000 * 100
Percent Growth = 20%

For Tennis Racquets:
Percent Growth = (210 * 110 - 200 * 110) / 200 * 110 * 100
Percent Growth = (23100 - 22000) / 22000 * 100
Percent Growth = 1100 / 22000 * 100
Percent Growth = 5%

Therefore, the real GDP grew by 20% for CDs and 5% for Tennis Racquets.

b. To calculate the value of the price index for GDP for 2005 using 2004 as the base year, we need to compare the prices in 2005 with the prices in 2004 and use the following formula:

Price Index = (Price in 2005 / Price in 2004) * 100

For CDs:
Price Index for CDs = (22 / 20) * 100
Price Index for CDs = 110%

For Tennis Racquets:
Price Index for Tennis Racquets = (120 / 110) * 100
Price Index for Tennis Racquets = 109.09%

To calculate the percent increase in prices, we compare the price index for 2005 with 100 (which represents the base year) and use the following formula:

Percent Increase = (Price Index - 100) / 100 * 100

For CDs:
Percent Increase = (110 - 100) / 100 * 100
Percent Increase = 10%

For Tennis Racquets:
Percent Increase = (109.09 - 100) / 100 * 100
Percent Increase = 9.09%

Therefore, the prices increased by 10% for CDs and 9.09% for Tennis Racquets.