Consider a simple economy producing 2 goods: coffee and TVs. In 2014 the economy produced 2000 pounds of coffee and 10 TVs. In 2015 the economy produced 1000 pounds of coffee and 12 TVs. The price of one TV was $1,000 in both years while the price of coffee decreased from $6/pound in 2014 to $5/pound in 2015. Based on this information the percentage change in real GDP in chained prices benchmarked to 2015 is:

% change in real GDP in chained prices benchmarked to 2015 is = -16.5%

Explanation:

Real GDP is a measure of the value of goods and services produced in an economy in a given year, expressed in base year prices after having been adjusted for inflation.

Real GDP 2014 using 2014 prices = (2000 x $6) + (10 x $1000) = $22,000

Real GDP 2015 using 2014 prices = (1000 x $6) + (12 x $1000) = $18,000

Change (in %) = (22000 - 18000) / 22000 = -18%

Real GDP 2014 using 2015 prices = (2000 x $5) + (10 x $1000) = $20,000

Real GDP 2015 using 2015 prices = (1000 x $5) + (12 x $1000) = $17,000

Change (in %) = (20000 - 17000) / 20000 = -15%

Thus, % change in real GDP in chained prices benchmarked to 2015 is

= (- 18 - 15) /2 = -16.5%

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