A very simple economy produces only 2 goods: bikes and steak. The quantities produced and their corresponding prices for 2005 and 2012 are shown in the table below. 2005 is the base year.

Product 2005 Quantity 2005 price 2012 quantity 2012 price

Bikes 1 $100 2 $150

Steak 5 $20 10 $30

a. Economists use Gross Domestic Product (GDP) to measure the value of total production in the economy. What is GDP in equation form? Briefly explain what each of the main components are.

b. Using the table above, what isnominal GDPin 2012? Make sure to show all your work!

c. Using the table above what isreal GDPin 2012? Make sure to show all your work!

d. Is nominal GDP or real GDP higher? Briefly explain why this is the case.