Question

The first 8 questions use data from this table. Thus, you'll need to select what you need for each calculation. Be sure to show your calculations for the short answer questions. cup of federal car loan nominal real funds interest Year GDP GDP CPI coffee rate rate (billions) (billions) (nominal) (nominal) (nominal) 1990 $4.00 $5.000 100 $0.75 10.0% 15.0% 2000 $6.00 $7.000 125 $1.00 5.0% 10.0% 2010 $10.00 $10.000 160 $1.50 3.0% 8.0% 2019 $16.83 $15.300 200 $2.00 1.0% 6.0% 2020 $17.68 $15.606 205 $2.00 1.5% 6.5%

What was the rate of economic growth from 2019 to 2020? For this and the following short answer questions, be sure to show your calculations.

What would be the rate of inflation for consumers from 2019 to 2020?

Adjusting for consumer inflation, in which year was the price of coffee the cheapest? Hint: use the deflating method to convert prices to a common year.

What was the inflation rate for the entire economy from 2019 to 2020?

What was the average annual inflation rate for consumers from 1990 to 2020?

How much did the real price of coffee for consumers change from 2019 to 2020?

What was the average annual rate of growth in this economy from 1990 to 2020?

Say that you wanted to convert the price of a cup of coffee from 1990 to values of 2020. What would the correct value?

please answer all the parts of the question, please and thank you

Answer 1

(1) The rate of economic growth from 2019 to 2020 = % change in real GDP during 2019 - 2020 = (15.606/15.3)-1 = 2.0%

(2) Rate of inflation for consumers during 2019-2020 = % change in CPI = (205/200)-1 = 2.5%

(3) GDP deflator is calculated in column H as the ratio of nominal GDP and real GDP,

i.e, GDP deflator = 100*Nominal GDP/Real GDP.

GDP deflator of 100 in the year 2010 indicates that the base year = 2010. Then the nominal coffee are converted to real price at 2010 level using the formula (nominal coffee price * 100/GDP deflator) in column I. Based on the real price of coffee, the price was lowest in 1990

(4) Inflation rate of entire economy during 2019 to 2020 = % change in GDP deflator during 2019-2020 = (113.29/110)-1 = 3.0%

(5) Average annual inflation rate for consumers during 1990 - 2020 = CAGR (compounded average growth rate) of CPI during 1990 - 2020 = [(205/100)^(1/30)]-1 = 2.4%

(6) Change in real price of coffee during 2019 - 2020 = Real price of coffee in 2020 - Real price of coffee in 2019 = 1.77 - 1.82 = -0.05, i.e., the real price of coffee declined by 5 cents.

(7) Average annual rate of growth (CAGR) during 1990 to 2020 = [(15.606 / 5)^(1/30)]-1 = 3.9%

(8) To convert the price of a cup of coffee from 1990 to the values of 2020, we need to use 2020 as base year. The deflator is first converted to 2020 base year in column J by using the formula (GDPdeflator)₂₀₁₀ * 100 / (GDPdeflator of 2020)₂₀₁₀. The the coffee price was adjusted using the 2020 base year deflator. So, price of a cup of coffee in 1990 using 2020 prices = $1.06.

The numbers are calculated as follows:

A B C Year Nominal Real GDP GDP (B) (B 1990 2000 2010 2019 D E F G Cup of federal car loan CPI coffee fund rate interest rate (nominal) (nominal) (nominal) 100 0.75 10% 15% 5% 10% 3% 8% 6% 205 1.50% 6.50% H I J K Coffee Deflator Coffee GDP deflator price (Base (Base = Price (Base (Base = 2010) = 2010) 2020) = 2020) 80.00 0.94 1.06 85.71 1.1775. 661.32 100.000 1.500 88.271 1.70 110.00 1.82 97.10 2.06 113.29 1.77 100.00 2.00 16.83 1%) 2020 17.68 15.606 Economic Growth Rate of inflation for consumer Rate of inflation for entire economy Average annual consumer inflation from 1990-2000 Change in real price of coffee from 1999 to 2000 Average annual rate of growth from 1990-2000 2.0% 2.5% 3.0% 2.4% -0.05 3.9% 12 13

The formula view of the calculations is as follows:

Α B C D H к Ε Cup of coffee (nominal) Nominal Real GDP GDP (B) (B) Year CPI federal fund rate (nominal) GDP deflator Coffee price Deflator (Base Coffee Price (Base = 2010) (Base = 2010) = 2020) (Base = 2020) 100 0.75 1251 G car loan interest rate (nominal) 0.15 0.1 0.08 0.06 0.065 7 2 1990 3 2000 6 4 2010 5 2019 6 2020 10.05 10 16.83 17.68 =B2*100/C2 =E2*100/H2 =B3*100/C3 =E3*100/H3 =B4*100/C4 =E4*100/H4 =B5*100/C5 =E5*100/H5 =B6*100/C6 1=E6*100/H6 =H2*100/$H$6 =E2*100/12 =H3*100/$H$6 =E3*100/13 =H4*100/$H$6 =E4*100/14 =H5*100/SH$6 =E5*100/15 =H6*100/SH$6 =E6*100/16 0.01 15.606 205 0.015 Economic Growth =C6/C5-1 Rate of inflation for consumer =D6/D5-1 Rate of inflation for entire economy =H6/H5-1 Average annual consumer inflation from 1990-2000 =(D6/D2)^(1/30)-1 Change in real price of coffee from 1999 to 2000|=16-15 Average annual rate of growth from 1990-2000/=(C6/C2)^(1/30)-1