Question

In: Economics

Country of Fruitland can produce either apples or oranges. Annual output and market prices of apples...

  1. Country of Fruitland can produce either apples or oranges.

Annual output and market prices of apples and oranges for the respective years are given in table below.

Let 2017 be the base year.

Suppose a representative consumer buys 10 apples and 20 oranges in a year.

Year

Price of Apples

Quantity of Apples

Price of Oranges

Quantity of Oranges

2017

$ 2

40

$ 5

50

2018

$ 3

50

$ 6

60

2019

$ 4

60

$ 7

70
  1. Compute the RGDP & NGDP for 2019.
  1. What is the GDP Deflator for 2018 & 2019?
  1. Compute the inflation rate for 2019 (using the GDP Deflator).
  1. What is the cost of CPI market basket in 2018 & 2019?
  1. What is the CPI for 2019?
  1. Compute the inflation rate for 2019 (using CPI).
  1. Give a reason why inflation rate is different between subpart C and F, if it is different at all.

Solutions

Expert Solution

G.

From the calculation of inflation rate by CPI and GDP deflator method we can see that the value of inflation rate by the calculation of CPI method is greater as compared to GDP deflator method

The reason is that CPI measures anything that is purchased by the customers

It includes some of the items like travelling allowances, housing, clothing, food etc

But if we talk about GDP deflator then it gives a bigger picture

It includes all the prices of goods and services that is produced in an economy over a given period of time

Rahul Sunny answered 2 years ago
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