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Back to Blackboard Notes Previous Next TABLE OF CONTENTS Work It OutI Chapter 2-Problem 7 Question 1 of 2 Consider an economy that produces and consumes bread and automobiles. In the following table are years. data for two different 2010 2015 Good Automobiles Bread Quantity 100 500,00o Price $50,00o 810 Quantity 120 400,000o Price $60,00o 820 Using 201o as the base year, compute the following statisties for each year: nominal GDP, real GDP, the implicit price deflator for GDP, and a fixed weight price index such as the CPI. 2010 2015 Nominal GDP Real GDP GDP Deflator CPI SubmitExplanation / Answer
(1) Nominal GDP (NGDP) = Sum of (Current year price x Current year quantity)
2010 ($): 50,000 x 100 + 10 x 500,000 = 5,000,000 + 5,000,000 = 10,000,000
2015 ($): 60,000 x 120 + 20 x 400,000 = 7,200,000 + 8,000,00 = 15,200,000
(2) Real GDP (RGDP) = Sum of (Base year (2010) price x Current year quantity)
2010 ($): 50,000 x 100 + 10 x 500,000 = 5,000,000 + 5,000,000 = 10,000,000
2015 ($): 50,000 x 120 + 10 x 400,000 = 6,000,000 + 4,000,00 = 10,000,000
(3) GDP Deflator = (NGDP / RDP) x 100
2010: ($10,000,000 / $10,000,000) x 100 = 100
2015: ($15,200,000 / $10,000,000) x 100 = 152
(4) CPI
Cost of basket, 2010 ($) = 50,000 x 100 + 10 x 500,000 = 5,000,000 + 5,000,000 = 10,000,000
Cost of basket, 2015 ($) = 60,000 x 100 + 20 x 500,000 = 6,000,000 + 10,000,000 = 16,000,000
CPI, 2010 = 100 (Base year CPI is always 100)
CPI, 2015 = (Cost of basket, 2015 / Cost of basket, 2010) x 100 = ($16,000,000 / $10,000,000) x 100
= 160
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