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Spring 20 - S. CHAMBERS > Activities and Due Dates > HW23: Homework- Ch. 23: GDP assignment Score: 57.8% Hint Check Answer Jestion 10 of 15 > Use the information to calculate the GDP deflator for both years and the inflation rate. The base year is 1970. Assume that there are only three goods in the economy: eggs, calculators, and microwave ovens. Please round your answer to two decimal points. Market basket 1970 prices 1975 quantity 1975 prices 1976 quantity 1976 prices dozen eggs 0.40 27 1.10 311.50 calculator 21.00 13.50 23 20.50 microwave 130.00 160.00 8 180.00 17 What is the GDP deflator for 1975? 1975 GDP deflator: What is the GDP deflator for 1976? 1976 GDP deflator: What is the inflation rate for 1976, when compared with 19752 inflation rate: about us Careers privacy policy terms of use contact us help

Answer 1

Solution:-

GDP Deflator for 1975:-

GDP Deflator = (Nominal GDP / Real GDP) * 100

Nominal GDP for 1975 = 1975 quantity * 1975 prices

                                            = (27 * 1.10) + (17 * 13.50) + (4 * 160)

                                            = 29.7 + 229.5 + 640

                                            = 899.2

Real GDP for 1975 = 1975 quantity * 1970 prices

                                      = (27 * 0.40) + (17 * 21) + (4 * 130)

                                      = 10.8 + 357 + 520

                                      = 887.8

GDP Deflator for 1975 = (Nominal GDP / Real GDP) * 100

                                            = (899.2 / 887.8) *100

                                            = 101.28%

GDP Deflator for 1976:-

GDP Deflator = (Nominal GDP / Real GDP) * 100

Nominal GDP for 1976 = 1976 quantity * 1976 prices

                                            = (31 * 1.50) + (23 * 20.50) + (8 * 180)

                                            = 46.50 + 471.5 + 1440

                                            = 1958

Real GDP for 1976 = 1976 quantity * 1970 prices

                                      = (31 * 0.40) + (23 * 21) + (8 * 130)

                                      = 12.4 + 483 + 1040

                                      = 1535.4

GDP Deflator for 1976 = (Nominal GDP / Real GDP) * 100

                                            = (1958 / 1535.4) *100

                                            = 127.58%

Inflation in 1976 as compared to 1975

GDP Deflator 1975 = 101.28

GDP Deflator 1976 = 127.58

Inflation = ((1976 GDP Deflator - 1975 GDP Deflator) / 1975 GDP Deflator) * 100

Inflation = ((127.58 – 101.28) / 101.28) * 100

Inflation for 1976 as compared to 1975 therefore is = 25.97%