2. (3.5 pts) The country described in the table below produces and consumes only
ID: 1157178 • Letter: 2
Question
2. (3.5 pts) The country described in the table below produces and consumes only three goods: energy drinks, pizza, and t-shirts. The quantity produced and price of each good in 2016 and 2017 are provided below 2016 2017 Good t-shirts Energy drinks(cans) 600 Pizza (slices) Price S22 S1.50 S2.25 Quantit 170 600 1,100 Price $20 $2 $3 Quantity 150 1,200 (1 pt) Refer to the above table. Assuming that 2017 1s the base year, compute the nominal and real GDPs for 2016 and 2017. Estimate the rate of growth of the real GDP between the two years a. b. (0.5 pt) Refer to the above table. Assuming that 2017 is the base year, compute the c. (1 pt) Assume the average consumer buys 10 t-shits, 6 cans of energy drinks, and d. (0.5 pt) Explain why the inflation you obtained in part b is different from the one e. (0.5 pt) Alex's salary in 2017 was $50,000 and was increased that year to GDP deflator in 2016 and 2017. Estimate the inflation rate between the two years 40 slices of pizza per year. Compute the consumer price index for 2016 and 2017, taking 2017 as the base year. Estimate the inflation rate between the two years you obtained in part c compensate for changes in the average consumer cost of living between 2016 and 2017. Compute Alex's original salary in 2016.Explanation / Answer
a.
2016
2017
Good
Q
P
Nominal GDP
Q
P
Nominal GDP
Real GDP for 2016
Real GDP growth rate
t-shirts
150
22
3300
170
20
3400
3000
Energy drinks(cans)
600
1.5
900
600
2
1200
1200
Pizza(slices)
1200
2.25
2700
1100
3
3300
3600
6900
7900
7800
1.28%
Real GDP for 2016= Quantity of 2016*prices of 2017
Real GDP growth rate = ((7900-7800)/7800)*100 = 1.28 percent
b.
Inflation
GDP deflator in 2016
88.46
GDP deflator in 2017
100.00
-11.54
GDP deflator for 2016 = (Nominal GDP of 2016/Real GDP of 2016)*100
GDP deflator for 2017 = (Nominal GDP of 2017/Real GDP of 2017)*100
Inflation rate = ((88.46-100)/100)*100 = -11.54
c.
2016
2017
Good
Q
P
Market basket
Q
P
Market basket
CPI for 2017
CPI for 2016
t-shirts
10
22
220
10
20
200
Energy drinks(cans)
6
1.5
9
6
2
12
Pizza(slices)
40
2.25
90
40
3
120
319
332
100
96.08
CPI for 2016 = (market basket of 2016/market basket of 2017)*100
Inflation = ((96.08-100)/100)8100 = -4.08 percent
d. Because market basket of 2016 in b used prices of 2017 whereas the CPI used its own prices
e. Using -4.08 percent inflation, 2016 salary = 50000-50000*0.0408 = $47960
2016
2017
Good
Q
P
Nominal GDP
Q
P
Nominal GDP
Real GDP for 2016
Real GDP growth rate
t-shirts
150
22
3300
170
20
3400
3000
Energy drinks(cans)
600
1.5
900
600
2
1200
1200
Pizza(slices)
1200
2.25
2700
1100
3
3300
3600
6900
7900
7800
1.28%
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