a) Nominal GDP takes into account the quantity and prices in the
current year.
Nominal GDP in 2010,
( 200 * 2 ) + ( 200 * 3 ) = 1000
Nominal GDP in 2018,
( 250 * 4 ) + ( 500 * 4 ) = 3000
Real GDP measures the current quantities but base year
prices.
Real GDP in 2018,
( 250 * 2 ) + ( 500 * 3 ) = 2000
GDP deflator = ( Nominal GDP / Real GDP ) * 100
( 3000 / 2000 ) * 100 = 150
CPI is measured by assumming a base year fixed quantity of goods
with current prices.
( 200 * 2 ) + ( 200 * 3 ) = 1000
For 2018
( 200 * 4 ) + ( 200 * 4 ) = 1600
( 1600 / 1000 ) * 100 = 160
b) CPI in 2010 is assumed to 100 and it clocked 160 in 2018 from
the above calculations.
( 160 / 100 ) - 1 = 0.6 or 60%
The rise in CPI is 60% between 2010 to 2018.
The price of the Hot dog was $2 in 2010 and it rose to $4 in
2018.
( 4 / 2 ) - 1 = 1 or 100%
The price of Hamburgers was $3 and it is now $4
( 4 / 3 ) - 1 = 0.33 or 33%
CPI is measured by Lespyres or Paasche Index
Lespyres Index =
Current Prices * Base Year Quantities /
Base Year Prices * Base Year Quantities
( 1600 / 1000 ) = 160
Paasche Index =
Current Prices * CurrentYear Quantities /
Base Year Prices * Current Year Quantities
( 3000 / 2000 ) = 150
Lespyres index actually takes into account the base year
quantities and that means it completely ignores the changes in
consumption patterns due to income effect or technological
progress. The consumption may increase and decrease from the base
period because of this and the degree will vary with a longer
period of time. It tends to return a number which is higher than
the actual inflation.
Paasche index, on the other hand, considers current period
quantities to the base year prices and it ignores the price change
due to macroeconomic factors. Paasche index depicts a lower value
of inflation than the actual.
#7 please 2010 Good Quantity Hot dogs 200 Hamburgers 200 2018 Price Quantity $ 2 250...
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