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Under the chain rule, we compare the GDP of each two consecutive years in terms of prices that prevail in the earlier year. Therefore, to compare 2018 and 2019, we must first calculate GDP in both years in 2018 prices. Consider an economy that produces only two goods, bread and butter. The following statistics are available about this economy. What is the growth rate of the real chain-rule GDP between 2018 and 2019?
2017: Base Year 2018 2019
Quantity- Price Quantity- Price Quantity Price
Bread 40-$1 50-$2 50-$1
Butter 60-$1 50-$1 60-$2
a. 3.03%
b. 6.00%
c. 6.25%
d. 6.67%
e.10%
Which one is correct?
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