1.Consider an economy in which only food, clothing, and computers are produced.
ID: 1167418 • Letter: 1
Question
1.Consider an economy in which only food, clothing, and computers are produced. The established market basket is the following: 300 food, 40 clothing, 1 computer.
Quantities
Prices
Food
Clothing
Computers
Food
Clothing
Computers
5000
600
50
$4
$20
$600
5500
700
75
$5
$22
$500
Year
2013
2014
Using 2014 as the base year, calculate:
a)The nominal GDP in 2013 and 2014, as well as the nominal GDP growth rate.
b)The real GDP in 2013 and 2014, as well as the real GDP growth rate.
c)The GDP deflator in 2013 and 2014, as well as the GDP deflator inflation rate.
d)Calculate the CPI in 2013 and 2014, as well as the CPI inflation rate.
Quantities
Prices
Food
Clothing
Computers
Food
Clothing
Computers
5000
600
50
$4
$20
$600
5500
700
75
$5
$22
$500
Explanation / Answer
Ans)
a)
Nominal GDP in 2013 = $4 * 5000 + $20 * 600 + $600 * 50
= $62000
Nominal GDP in 2014 = $5 * 5500 + $22 * 700 + $500 * 75
= $80400
Nominal GDP growth rate = ($80400 - $62000) / $62000 = 0.296774
b)
Real GDP in 2013 = $5 * 5000 + $22 * 600 + $500 * 50
= $63200
Real GDP in 2014 = $5 * 5500 + $22 * 700 + $500 * 75
= $80400
Real GDP growth rate = ($80400 - $63200) / $63200
= 0.27215
c) The GDP deflator is equal to (Nominal GDP / Real GDP)*100.
As 2014 is the base year, thus GDP deflator is = 100.
For 2013, we have ($62000 / $63200)*100 = 98.10
GDP deflator inflation rate = (100 - 98.10) / 98.10 *100 = 1.937
d) Using market basket,
CPI in 2013 = ($4 * 300 + $20 * 40 + $600 * 1) / 2880* 100 = $2600 / $2880 * 100
= 90.2778
CPI in 2014 = (($5 * 300 + $22 * 40 + $500 * 1) / ($5 * 300 + $22 * 40 + $500 * 1) )*100
= 2880 / 2880*100 = 100
CPI inflation rate = {(100 - 90.2778) / 90.2778} * 100 = 10.77%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.