Question

6. (1). Calculate two inflation rates using the Deflators and CPI (4 marks) 

Use the following table to answer parts (a) to (f): (24 marks) 

(a). Calculate Nominal GDP for both years. Search the web and Windows

Answer 1

A) Nominal GDP= Current year prices* Current year quantity

Nominal GDP 2014=3.2*10+2*7+3*3=55

Nominal GDP2015=4.5*11+2.5*9+2.5*5=84.5

B)real gdp= base year prices* current year quantity

because 2015 is base year so ,

Real gdp 2015=84.5

Real gdp 2014=4.5*10+2.5*7+2.5*3=70

Gdp deflator= nominal gdp/ real gdp]*100

Gdp deflator 2014=55/70]*100=78.5

Gdp deflator 2015=84.5/84.5]*100=100

Inflation 2015 using deflator=( deflator 2015-deflator 2014)/deflator 2014]*100=(100-78.5)/78.5]*100=27.38%

Basket value of 2015 =84.5

Same basket of 2015 value in 2014 prices=3.2*11+2*9+3*5=68.2

CPI=basket value in current year / basket value in base year ]*100

CPI 2014=(68.2/84.5]*100=80.7

Cpi 2015=(84.5/84.5]*100=100

Inflation 2015 using cpi=(100-80.7)/80.7]*100=23.9%