The data of Macroeconomics: Price indices A. Obtain data for the consumer price

Question

The data of Macroeconomics: Price indices

A. Obtain data for the consumer price index (CPI) and the GDP deflator (use the chain-type price index for GDP) for the the following years: 1972,1973 and 1974.

B. Calculate the inflation rate between 1972-1973 and between 1973-1974 using the CPI measure.

C. Calculate the inflation rate between 1972-1973 and between 1973-1974 using the GDP deflator measure.

D. in late 1973, OPEC (Organization of the Petroleum Exporting Countries) tripled the price of oil. How can this fact explain the difference in inflation rate between 1973-1974 using the CPI measure vs. the GDP deflator measure?

Explanation / Answer

PART- A. Answer:

Year

CPI

GDP Deflator

1972

41.8

25.37

1973

44.4

27.08

1974

49.3

29.92

?

PART- B. Answer:

Year

Inflation rate

Working

1972-1973

6.22%

(44.4 - 41.8) / 41.8

1973-1974

11.036%

(49.3 - 44.4) / 44.4

?

PART- C. Answer:

Year

Inflation rate

Working

1972-1973

6.74%

(27.08 - 25.37) / 25.37

1973-1974

10.487%

(29.92 - 27.08) / 27.08

?

PART- D. Answer: The GDP deflator includes basket of all final goods and services produced in the domestic economy, and conversely the CPI basket uses the goods and services purchased by specific consumers. Thus will give different inflation rate

?

Year

CPI

GDP Deflator

1972

41.8

25.37

1973

44.4

27.08

1974

49.3

29.92

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