Question

Question 3 Use the following price and quantity data for this question. For chain-weight with price average, use the method discussed in class. Year 1 Quantity Price 10 20 10 Year 2 Quantity Price 15 10 15 40 Fill in the following chart: Year Nominal GDP real GDP real GDP (base=year 1) (base=year2) real GDP (chain-weight with price average) Year 1 Year 2 b) Fill in the follow chart, which asks you to calculate the inflation rate between years 1 and 2 using the Implicit GDP Price Deflator in three ways: year 1 as base year, year 2 as base year, and chain- weighting using price average. Inflation rate (%) Base = Year 1 Base = Year 2 Chain-weighted, price average

Answer 1

Qun tion 3 ұем 1 Quantity Price 10 1. Year 2 puce @umkЯ 15 40 10 15 Nominal GDP I real app (base=yer 1 Irene GP T(base= Year 2) I real aDP Chain weigut cal Twith pice areage) year! pso 250 400 475 year 2 | 750° 475 750 1425 Scanned with CamScanner

Nominal LDP in year it #$ 9 [(5x19)+ (10x20] = $ [s0+200] = $ 250 $ " Nominal GDP in yn 2: $ [ (10x15) +(15X40)] = $(1507600) ! = $ 750 peat app is when you f is the base you! Real GDP in year 1 when year 1 is the bass year! [(5 x 10) + ( 20x107 - $ [ 507 20] = $250 peal GDP in year 2 1 when year 2 is the base your = $ [ ( 10x 10) + ( 208 15)] - $ (1007300) = $ 400 Real GDP u you 2 when year 1 is the base y ears &1 (5x15) +(10x 4007 = $ (75 +400) = $ 475 Real GDP in yun 2 when year 2 is the base year! rc lox 15) + (15X40)7 - $750 s CamScanner

Now grow th rate oqu DP When the base your is Нам 1. гум 2 ( м 1м4) - у 4 ( be im4) ума (Биг уял) . - } [425 - 2 so] — : o4 9 250 Also, anov & K 4DP who w boot wh ym 2: уем 2 (Бос 1м 2) - Yи 1 ( 5st Fra) Уен 1 (b ve qол 2) $ Д 150 - 4om/ - - - 83 Now the average growth rate! (0.980:88] 2 — HD 2 - го. Now the Nominal GDP in year 1 = $250 Нии R44 4DP 4м 1: (+ora) х 250 - $47s Now, Nominal GD P in you 2 = $750 wa Read GDP & Mм 2 = ( 1+o •4) У 4 2so) 2 4 14 25 Scanned with CamScanner

Now implica't abp Price deblator in base you 1 Nominal app in year 250 = 1 Real aDP in ycom 1 - 250 and no implicit GOP pice de slator in year 2 - Nominal GDP in Y con 2 (bastgal) - Real GDP in yon 2l base you 2) 750 CS Scanffed with L = 1.58 CamScanner 475

-Xin » thuce inflation rate between you 1 and 2 is. GDP deflator in Yer 2-GO p det lator in yest abe kho7 - 11 (1-50 -1) - 53 •• 1) Nov 4DP &044 от ч. 24 ( be Чи 2) Nominal a DP in year 1 (buseyn - 25o. Real GDPA 8м2 (3wх гол 2) 40 2 = 0.63 бре е, Лот 4 8 2 (Jee и 2) Nominal GDP in y, as 2 750 Best 4D PA 4м2 ( beacy w2) 750 Hence, the inflation rate betwem year I and year wku bwс ч ол е чем 2. - 21 Nominee 2 CD PAh, от уеал 2-4DPk b4 #от дуоn, —x/ GDP deflator in yeana (1- о. 63) — X10D О: 43 = 58.73. cs Scanned with CamScanner

Now by chain-weighted price arrage GDP deflator in year 1 = 1. Nominal GDP in yearl Real GDP in year 1 250 =0.53 = 475 = in yen2 GDP det lat or nominal GDP in year 2 Real app in Y ear 2 750 = 1425 -0.522 10.522- 0.53 Co. 0.53 xloo = tuce inflation rate . 1.5.10 Scanned with CamScanner

gutlation rate (%) Base= Year A - 58 Base = Year 2 58.73 chain-weighted, puce average -lis Scanned with CamScanner