Question

please include detailed steps with answer

6. The table shows the production of the only three final goods (pucks, root beer, sandals) in a hypothetical country for different years. The national statistical organization estimates that the market basket contains 10 units of pucks, 10 units of root beer and 2 units of sandals. Using 2015 as the base year, find the GDP-deflator based inflation rate and the CPI-based inflation rate between 2014 and 2015. Pucks Year Quantity 2014 | 100 million 2015 125 million Root beer Price Quantity Price $20 300 million $5 $20 | 250 million $7 Sandals Quantity Price 1 million $20 1.1 million $25

Answer 1

					Nominal GDP		Real GDP		Market basket in 2014	Market basket in 2015 (base year).
	2014		2015 (BASE YEAR)		Expenditure in 2014	Expenditure in 2015 (Base year)	Expenditure in 2014	Quantity
	Price ($ )	Quantity (millions)	Price ($ )	Quantity (millions)
Pucks	20.00	100	20.00	125	2000	2500	2000	10	200	200
Root beer	5.00	300	7.00	250	1500	1750	2100	10	50	70
Sandals	20.00	1	25.00	1.1	3500	4250	25	2	40	50
					3500	4250	4125		290	320
1)
Nominal GDP: the value of final goods and services at current prices
Nominal GDP in 2014 is price in 2014 times quantity in 2014
Nominal GDP in 2015 is price in 2015 times quantity in 2015
Real GDP: The value of final goods and services at base year prices
Real GDP= Base year price times current year quantity
Quantity in 2014 times prices in 2015 ( base year).
In base year, nominal and real GDP are the same.
Nominal GDP in base year is $4250.
Inflation rate between 2014 and 2015
Formula for GDP Deflator		Nominal GDP/Real GDP
	Nominal GDP $	Real GDP $	GDP Deflator
2014	3500	4125	85
2015	4250	4250	100
	In 2014, GDP deflator= (3500/4125) x100
	85.00%
GDP deflator in base year is 100.
Inflation rate between 2014 and 2015
(100-85)/85=
(15/85)*100=17.65%.
CPI
CPI formula	(Base year basket quantity times current year prices)/Base year basket quantities times base year prices)100
CPI in 2015 (base year) is 100.
CPI=( Cost of the base year market basket in the current period/Cost of the base year market basket in the base period)x100
CPI in 2014
(290/320)*100
90.625
Inflation rate between 2014 and 2015
(Current period CPI-Prior period CPI)/Prior period CPI
(100-90.625)/90.625=9.375/90.625
10.34%
Inflation rate using CPI is 10.34%.