Question

In: Economics

Use the following data to answer the following questions; A. Calculate nominal GDP in 2012 and...

Use the following data to answer the following questions; A. Calculate nominal GDP in 2012 and 2013 B. Calculate real GDP in 2012 and 2013 (make 2012 the base year) Quantities 2012 2013 Apples 70 160 Oranges 90 220 Prices 2012 2013 Apples $.50 $1 Oranges $.25 $2

The BLS reported the following CPI data.

What is the rate of deflation between June 2008 and 2009? (Even though the price level fell, you still work the problem the same)

June 2008	217.3
June 2009	214.6
June 2010	216.9

Expert Solution

Solution:

A) Nominal GDP in 2012 = (Price of Apples in 2012)*(Quantity of Apples in 2012) + (Price of Oranges in 2012)*(Quantity of Oranges in 2012)

Nominal GDP in 2012 = ($.50*70) + ($.25*90) = 35 + 22.5 = 57.5

Nominal GDP in 2013 = (Price of Apples in 2013)*(Quantity of Apples in 2013) + (Price of Oranges in 2013)*(Quantity of Oranges in 2013)

Nominal GDP in 2013 = ($1*160) + ($2*220) = 160 + 440 = 600

B)

Real GDP in 2012 = (Price of Apples in 2012)*(Quantity of Apples in 2012) + (Price of Oranges in 2012)*(Quantity of Oranges in 2012)

Real GDP in 2012 = ($.50*70) + ($.25*90) = 35 + 22.5 = 57.5

Real GDP in 2013 = (Price of Apples in 2012)*(Quantity of Apples in 2013) + (Price of Oranges in 2012)*(Quantity of Oranges in 2013)

Real GDP in 2013 = ($.50*160) + ($.25*220) = 80 + 55 = 135

Solution: Rate of deflation between June 2008 and June 2009 is given by:

(Price Index of June 2008 - Price index of June 2009)/(Price Index of June 2008)

(217.3 - 214.6)/217.3

2.7/217.3 = 0.0124 or 1.24%

Rahul Sunny answered 8 months ago

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