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.