Question

Q1.You are given the following information about the economy of Freedonia. The country produces 10 of X with PX=1 and 4 of Y with Py=2 in year 1. In year 2, the country produced 12 of X with PX=.5 and 6 of Y with Py=3. Based on this information answer the following 2 questions. In Freedina, considering year 2 as the base year, the CPI in year 1 is Select one:

a. 110

b. 73

c. 100

d. 80

e. 105

Q2 Based on the information about the economy of Freedonia "Q1" , the GDP deflator for years 1 and 2 is Select one:

a. 100 and 105

b. 105 and 106

c. 100 and 106

d. 106 and 100

e. 100 and 100

Q3.  Based on the information about the economy of Freedonia "Q1" In freedonia, real GDP in years 1 and 2 is Select one:

a. 24 and 24

b. 24 and 18

c. None of the above

d. 17 and 24

e. 18 and 24

Answer 1

Q-1 :: ANSWER :: (B) 75

=> Explanation ::

CPI = Cost Of Market Basket In Given Year/Cost Of Market Basket in Base Year *100

-> Market Basket In Given Year ::

*YEAR -1 = (Unit * Price)

X = 10 * 1 = 10

Y = 4 * 2 = 8 :: TOTAL = 18

*YEAR - 2 = (Base year)

X = 12 * 0.5 = 6

Y = 6 * 3 = 18 :: TOTAL = 24

=> So, CPI = 18/24 *100

= 75

*Note :: So, Option B Given 73 But Right Answer Is 75 CPI Of Year - 1

Q-2 :: ANSWER :: (D) 106 And 100

=> Explanation ::

=> GDP Deflator = Nominal GDP/REAL GDP*100

=> GDP Deflator For Year - 1 ::

-> Nominal GDP = (10*1) + ( 4*2) = 10 + 8 = 18

-> Real GDP (Base Year Price ) = (10 * 0.5) + (4*3) = 5 + 12 = 17

So, GDP Deflator = 18/17 * 100

= 105.88

= 106 (Rounded)

=> GDP Deflator For Year - 2 (Base year)

-> Nominal GDP = (12*0.5)+(6*3) = 6 + 18 = 24

-> Real GDP (Base Year Price) = (12*0.5) + (6*3) = 6 + 18 = 24

So, CPI = 24/24*100

= 100

Q-3 :: ANSWER :: (D) 17 And 24

=> REAL GDP IN YEAR -1 (At Base Year Price)

X = 10 * 0.5 = 5

Y = 4 * 3 = 12

-> Real GDP For Year -1 = 5 + 12

= 17

=> REAL GDP IN YEAR-2 (At Base Year Price)

X = 12 * 0.5 = 6

Y = 6 * 3 = 18

-> Real GDP For Year-2 = 6 + 18

= 24