Question

In: Economics

What is the GDP deflator in year 1?

YearQuantity xPrice xQuantity yPrice yPopulationEmployedUnemployedNot LookingCPI
140,000$455,000$121,9251,57553263118
241,500$4.3056,100$12.252,0301,62870289123
341,200$4.5056,000$12.402,1881,750114298125

What is the GDP deflator in year 1?

Calculate the real GDP growth rate between years 2 and 3.

What is real GDP per capita in year 3?

What is the unemployment rate in year 2?

What is the labor force participation rate in year 1?

What is the inflation rate, as measured by the CPI between years 1 and 2?

Solutions

Expert Solution

YEAR QUANTITY x PRICE x ($) QUANTITY y PRICE y ($)
1 40,000 4 55,000 12
2 41,500 4.3 56,100 12.25
3 41,200 4.5 56,000 12.4

We know,

GDP Deflator =(Nominal GDP/Real GDP)*100

Nominal GDP = (Price x * Quantity x) + (Price y* Quantity y)=40000*4+55000*12= 820000

Real GDP = (Price of x in base year * Quantity x) + (Price of y in base year * Quantity y)= 40000*4+55000*12= 820000

[Here base year = year1]

Here,

  • (GDP Deflator)year 1 = ( 820000 / 820000)*100

= 100

YEAR QUANTITY x PRICE x ($) QUANTITY y PRICE y ($) Real GDP
1 40,000 4 55,000 12
2 41,500 4.3 56,100 12.25 839200
3 41,200 4.5 56,000 12.4 836800

Real GDP growth rate between years 2 and 3 = [(Real GDP of year 3 - Real GDP of year 2 )/Real GDP of year 2]*100

[Note: Real GDP of year 2 and year 3 is calculated by taking year 1 as the base year]

  • Real GDP growth rate between years 2 and 3 = [836800 - 839200 )/839200]*100

= - 0.28

Real GDP per capita of year 3 = Real GDP of Year 3/population in year 3

  • Real GDP per capita of year 3 = ( 836800 /2,188)

= 382.45

The unemployment rate in year 2 = unemployed in year 2 /(unemployed in year 2+employed in year 2)

  • The unemployment rate in year 2 = [70 /(1628+70)]*100

=4.12%

The labor force participation rate in year 1 =( Labour Force in year 1 / Working age population in year 1)*100

    = [(Employed+Unemployed)/( Employed+Unemployed+Not Looking)]*100

  • The labor force participation rate in year 1=[ (1575 +53)/(1575+53+263)]*100

=1628/1891

= 86%

The inflation rate, as measured by the CPI between years 1 and 2=[CPI of year 2 - CPI of year 1 / CPI of year 1]*100

  • The inflation rate, as measured by the CPI between years 1 and 2=[(123-118)/118]*100

= 4.24


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