1. Assume there are only two goods in the economy, french fries and onion rings. In 2012, 1,000,000 servings of french fries were sold for $0.40 each and 800,000 servings of onion rings were sold for $0.60 each. From 2012 to 2013, the price of french fries rose to $0.50 and the servings sold fell to 900,000; the price of onion rings fell to $0.51 and the servings sold rose to 840,000.

a. Calculate nominal GDP in 2012 and 2013. Calculate real GDP in 2013 using 2012 prices.

b. Why would an assessment of growth using nominal GDP be misguided?