period nominal GDP (trillions of dollars) market basket cost for typical househo
ID: 1188919 • Letter: P
Question
period
nominal GDP
(trillions of dollars)
market basket cost for typical household (hypothetical)
1) From the data, please compute the core rate of inflation from 2013 to 2014.
2) From the data, compute the rate of inflation for the entire economy from 2013 to 2014. Please show your work. Also, from what we did in class, does your answer seem reasonable to you?
period
nominal GDP
(trillions of dollars)
(trillions of 2009 dollars)
market basket cost for typical household (hypothetical)
market basket cost for typical household without food and energy prices (hypothetical) nominal interest rate on car loans 1982-84 $2,000 $1,950 13.0% 2009 14.4 14.4 $4,400 $4,000 6.7% 2010 15 14.7 $4,450 $4,000 6.2% 2011 15.5 15 $4,500 $4,100 5.7% 2012 16.1 15.4 $4,600 $4,200 4.9% 2013 16.7 15.7 $4,700 $4,400 4.4% 2014 17.4 16 $4,800 $4,500 4.2%Explanation / Answer
(1) Core inflation is an inflation measure that excludes food & energy prices.
Market basket cost (Excluding food & energy), 2013 = $4,400
Market basket cost (Excluding food & energy), 2014 = $4,500
Core inflation rate = Change in this market basket cost from 2013 to 2014
= $(4,500 - 4,400) / $4,400 x 100 = 2.27$
(2) Rate of inflation of entire economy is measured by change in real GDP over the 2 years.
Real GDP, 2013 = $15.7 trillion
Real GDP, 2014 = $16 trillion
Inflation rate = (16 - 15.7) / 15.7 x 100 = 1.91%
Note: I didn't attend your class, so don't know from which aspect to assess if the result the reasonable. Was there any specific argument your Professor mentioned?
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