In: Economics
An economy produces and consumes only two products: college education and economic textbooks. The following table gives the appropriate data for two different years.
2005 |
2008 |
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Price of College Education |
$10,000 |
$15,000 |
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Quantity of College Education |
50 |
60 |
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Price of Economics Textbooks |
$100 |
$125 |
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Quantity of Economics Textbooks |
20 |
25 |
Using the above table, compute the following and show your calculations
Nominal GDP for 2005 and 2008.
Real GDP for 2008 using 2005 as the base year.
The GDP Deflator for 2008.
The CPI index for 2005 and 2008 using 2005 as the base year.
The inflation rate from 2005 to 2008 based on the CPI.
2005 (Base Year) |
2008 |
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Quantity |
Price |
Value |
Quantity |
Price |
Value |
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College Education |
50 |
10,000 |
500000 |
60 |
15,000 |
900000 |
|
Economics Textbooks |
20 |
100 |
2000 |
25 |
125 |
3125 |
|
Nominal GDP |
10,100 |
502000 |
15,125 |
903125 |
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1. Nomial GDP = Units of output*Price per unit |
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2005 |
502000 |
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2008 |
903125 |
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2. Real GDP of 2008 if base year is 2005 |
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Real GDP = Units of output*price of base year |
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2008 |
|||||||
Quantity |
Price of |
Value |
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60 |
10,000 |
600000 |
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25 |
100 |
2500 |
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REAL GDP |
602500 |
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3. GDP Deflator for 2008 |
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GDP Deflator = Nominal GDP/Real GDP *100 |
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903125/602500*100= 149.89 |
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4. The CPI index for 2005 and 2008 using 2005 as the base year. |
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CPI index for base year (2005) will be always 100 |
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CPI index for 2008 |
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Price of market basket of 2008/price of market basket of 2005*100 |
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15,125/10,100*100 = 149.75 |
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5. The inflation rate from 2005 to 2008 based on the CPI. |
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Inflation = CPI in 2008 - CPI in 2005/CPI in 2005*100 |
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149.75-100/100*100 = 49.75% |