Chapter 1. Chapter 2 – Problem 7

Question 1

Work It Out
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You must read each slide, and complete any questions on the slide, in sequence.

Question

Consider an economy that produces and consumes bread and automobiles. In the following table are data for two different years.

2010 2015
Good Quantity Price Quantity Price
Automobiles 100 $50,000 120 $60,000
Bread 500,000 $10 400,000 $20

Using 2010 as the base year, compute the following statistics 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 $jMs2s+PVvZtjnQGckBpRT4twtUSVwIbOL77EysUvFN4ydelPRmozHw== $TyXqSNHNWQrpIfZIeKNXL7lk7YS4E+vOvuaB367LjOg9niNR/tb0VQ==
Real GDP $jMs2s+PVvZtjnQGckBpRT4twtUSVwIbOL77EysUvFN4ydelPRmozHw== $jMs2s+PVvZtjnQGckBpRT4twtUSVwIbOL77EysUvFN4ydelPRmozHw==
GDP Deflator uZ6FOsZ2tmna76zUpKBsR9HxV+dl8Qf0 PvyS+M7pAxZg01aGM6AsddOz14vL2bGr
CPI uZ6FOsZ2tmna76zUpKBsR9HxV+dl8Qf0 AaQbRl/2+zLFhtsDnu9WzfRIykPM5JGC
Review text pages 21, 24-25, and34 for discussion of how to compute nominal GDP, real GDP, the GDP deflator, and the CPI.
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Question 2

Question

By what percentage did prices rise between 2010 and 2015? Give the answer for each good and also for the two measures of the overall price level by filling out the table below.

2010 2015 % Change
Autos $50,000 $60,000 U+eGPuSkovlrpKED3VL00ggIiDosR8V8%
Bread $10 $20 npiyi5PGw2D6O/5LcYO98YS75t6phM5g%
GDP Deflator 1.0 1.52 79aGVPDG/huYYS9hPjrijaNdcLFIDSdH%
CPI 1.0 1.60 XTZ/vrR4qpzCe8KbQ9xHJkf7jKGhqaex%
Review text pages 35-36 for details of how Paasche indexes, such as the GDP deflator, differ from Laspeyres indexes, such as the CPI.