1. Suppose the following table records the total output and prices for an entire
ID: 1248454 • Letter: 1
Question
1. Suppose the following table records the total output and prices for an entire economy. Further, suppose the base year in the following table is 2000.
Year
Price of soda
Quantity of soda
Price of jeans
Quantity of jeans
2000
$1
200
$10
50
2001
$1
210
$12
50
a) What is the value of nominal GDP in 2000?
b) What is the value of real GDP in 2000?
c) What is the value of nominal GDP in 2001?
d) What is the value of real GDP in 2001?
e) What is the value of the GDP deflator in 2000?
f) What is the value of the GDP deflator in 2001?
g) From 2000 to 2001, prices rose approximately what percentage?
h) Was the increase in nominal GDP from 2000 to 2001 mostly due to an increase in real output or due to an increase in prices?
2. Suppose that the residents of Vegopia spend all of their income on cauliflower, broccoli, and carrots. In 2008, they buy 100 heads of cauliflower for $200, 50 bunches of broccoli for $100, and 500 carrots for $50. In 2009, they buy 75 heads of cauliflower for $240, 80 bunches of broccoli for $180, and 500 carrots for $100.
a) Calculate the price of each vegetable in each year.
Year
Cauliflower
Broccoli
Carrots
2008
2009
b) Using 2008 as the base year, calculate the CPI for each year.
c) What is the inflation rate in 2009?
Year
Price of soda
Quantity of soda
Price of jeans
Quantity of jeans
2000
$1
200
$10
50
2001
$1
210
$12
50
Explanation / Answer
a)(1x200)+(10x50)= $ 700
b)(1x200)+(10x50)= $ 700 since base year is 2000
c) (1x210)+(12x50)= $ 810
d)(1x210)+(10x50)= $ 710 using price in 200 since 200 is the base year
e)Nominal gdp/real gdp
=700/700=1
f) 810/710=1.14
h) increase in price
2
a) cauliflower 2008=$200
2009= $240
broccoli 2008= $100
2009= $180
carrots 2008 =$50
2009= $100
b)
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