Question

Consider an economy that produces and consumes coffee, bread and auto- mobiles. In the following table, we have data for two different years. The first 2 questions refer to this table. Price of 1 Automobile Price of 1 loaf of Bread Price of 1 cup of Coffee Number of Automobiles Produced Number of Loaves of Bread Produced Number of Cups of Coffee Produced Year 2018 $30,000 $1.50 $2.00 1000 400,000 100,000 Year 2019 $31,000 $1.60 $2.20 1100 400,000 105,000 1. (8 points) Using the year 2018 as the base year, compute the following statistics for each year: nominal GDP, real GDP, the GDP deflator (a Paasche price index) and the CPI (a Laspeyres price index). For the CPI, assume that the representative basket of goods is exactly the one produced in the year 2018 2. (2 points) How high was the inflation rate between 2018 and 2019, based on the GDP deflator, and based on the CPI?

Answer 1

A.

Nominal GDP=Current year price* Current year quantity

2018=(30000*1000)+(1.5*400000)+(2*100000)

=(30000000+600000+200000)

=3,08,00,000

2019=(31000*1100)+(1.60*400000)+(2.20*105000)

=3,41,00,000+6,40,000+2,31,000)

=3,49,71,000

Real GDP=base year price* current year quantity

2018=(30000*1000)+(1.5*400000)+(2*100000)

=(30000000+600000+200000)

=3,08,00,000

2019=(30000*1100)+(1.50*400000)+(2.*105000)

=3,30,00,000+600000+210000

=3,38,10,000

GDP deflator=( nominal GDP/Real GDP)*100

2018=(3,08,00,000/3,08,00,000)*100

=100.

2019=(3,49,71,000/3,38,10,000)*100

=103.43

CPI=price of the basket of goods and sevices/ price of the asket of base year

2018=(3,08,00,000/3,08,00,000)*100

=100

2019=(3,49,71,000/3,08,00,000)*100

=113.54

price of the basket

2018=(30000*1000)+(1.5*400000)+(2*100000)

=(30000000+600000+200000)

=3,08,00,000

2019=(31000*1100)+(1.60*400000)+(2.20*105000)

=3,41,00,000+6,40,000+2,31,000)

=3,49,71,000

B.

Inflation=[( year 2- year 1)/ year 1]*100

on the basis of GDP deflator =[(103.43-100)/100]*100

=3.43%

on the basis of CPI=[(113.54-100)/100]*100

=13.54%