Consider two economies, A and B. Each economy produces goods and services. Suppose that in economy A, services initially account for 80% of nominal GDP, and in economy B, services initially account for 40% of nominal GDP. Suppose further that in both economies there is no change in quantities of goods or services produced over time. However, in both economies the price of services is increases by 10%, while the price of goods declines by 5%.

1. Using the initial year as the base year, which economy exhibits higher real GDP growth? Using the end year as the base year, which economy exhibits higher real GDP growth?

2. Using chained prices, does one of the two countries have higher productivity growth than the other?

ˆ3. In one or two sentence, explain which calculation makes the most sense in this example: using initial year as base year, using final year and base year, or using chained prices