Suppose an economy produces only two goods, cups of coffee and gallons of milk, as shown in Table 11.E1:

a. Calculate the expenditure on each good and the nominal and real GDP for 2010, the base year.

b. Repeat this exercise for each of the three alter-native cases (1, 2, and 3).

c. Explain the differences between nominal GDP and real GDP in each of these cases.

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TABLE 11.E1 Nominal Versus Real GDP GDP (NOMINAL, REAL) MILK (GALLONS) Price $2.00 COFFEE (CUPS) YEAR 2010 (The base year) Expenditure 2011 (Case 1) Quantity 10 Quantity 20 Price $1.00 Quantity 20 Price Quantity 10 Price $4.00 $1.50 Expenditure 2011 (Case 2) Quantity 40 Price Quantity 15 Price $2.00 $1.00 Expenditure 2011 (Case 3) Quantity 40 Price Quantity 15 Price $4.00 $1.50 Expenditure