The producer price index measures: A. the cost of a basket of goods and services
ID: 1213824 • Letter: T
Question
The producer price index measures:
A. the cost of a basket of goods and services sold by producers
B. the cost of a basket of goods and services bought by firms
C. the cost of a basket of goods and services typical of those produced in the economy
D. the cost of a basket of goods and services produced for a typical consumer
Suppose an economy produces two products: meat pies and MP3s. In 2011, 20 meat pies are sold at $5 each, and eight MP3s are sold at $50 each. In 2010, the base year, the price of meat pies was $10 each, and the price of MP3s was $75 each. Therefore:
A. the real 2011 GDP is $800, and the GDP deflator is 62.5
B. the real 2011 GDP is $800, and the GDP deflator is 160
C. the real 2011 GDP is $500, and the GDP deflator is 62.5
D. the real 2011 GDP is $500, and the GDP deflator is 160
GDP includes the value of final goods, and not intermediate goods, because:
A. the value of intermediate goods is already included in the value of final goods
B. the value of intermediate goods is too difficult to measure
C. the value of intermediate goods is measured by GNP
D. the value of intermediate goods depends on the number of separate production processes
A. the cost of a basket of goods and services sold by producers
B. the cost of a basket of goods and services bought by firms
C. the cost of a basket of goods and services typical of those produced in the economy
D. the cost of a basket of goods and services produced for a typical consumer
Explanation / Answer
1)producer price index is the cost of basket of goods and services bought by firms
2) same amount of products were produced in 2010
in 2011 20*5 + 8*50 =500 ( nominal gdp), real gdp=20*10 + 8*75 =800
gdp deflator=500/800= 62.5
as the value of intermediate good are already included in final goods, to avoid double counting we only measure final goods.
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