The following two tables represent the price and quantity of the goods produced within an economy...
The following two tables represent the price and quantity of the goods produced within an economy in 2015 & 2016.
What is the inflation rate between 2015 & 2016?
| Prices | Quantities | |||
| 2015 | 2016 | 2015 | 2016 | |
| Soda | $2 | $2 | 36 | 40 |
| Burgers | $8 | $12 | 8 | 10 |
| French Fries | $2 | $1 | 16 | 20 |
Homework Answers
Find nominal GDP in 2015 (which is also the real GDP of 2015 since 2015 is the base year) = price of soda (2015) x quantity of soda (2015) + price of burgers (2015) x quantity of burgers (2015) + price of french fries (2015) x quantity of french fries (2015) = 2*36 + 8*8 + 2*16 = 168
Find nominal GDP in 2016 = price of soda (2016) x quantity of soda (2016) + price of burgers (2016) x quantity of burgers (2016) + price of french fries (2016) x quantity of french fries (2016) = 2*40 + 12*10 + 1*20 = 220
Find real GDP in 2016 = price of soda (2015) x quantity of soda (2016) + price of burgers (2015) x quantity of burgers (2016) + price of french fries (2015) x quantity of french fries (2016) = 2*40 + 8*10 + 2*20 = 200
Now GDP deflator 2015 = nominal GDP 2015 / Real GDP 2015 = 168/168 = 100
GDP deflator 2016 = nominal GDP 2016 / Real GDP 2016 = 220/200 = 110
Inflation rate = (110 - 100)/100 = 10%
Therefore the rate of inflation is 10%
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The following two tables represent the price and quantity of the
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