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Question 1 An economy produces and consumes four goods namely milo, rice, bread and sobolo. The...

Question 1

An economy produces and consumes four goods namely milo, rice, bread and sobolo. The prices and quantities of these goods over a three-year period are shown in the table below.

Table I: Prices and quantities of milo, rice, bread and sobolo goods over a 3-year period

Year		2017		2018		2019
	Goods	Price	Quantity	Price	Quantity	Price	Quantity
	Milo	GHC8.00	24	GHC9.50	24	GHC10.50	35
	Rice	GHC32.00	16	GHC34.00	16	GHC35.00	22
	Bread	GHC2.00	30	GHC3.00	30	GHC3.00	35
	Sobolo	GHC1.50	15	GHC2.00	15	GHC2.00	20

Calculate nominal GDP in 2017, 2018 and 2019.
Using 2017 as your base year, calculate real GDP in 2017, 2018 and 2019.
Calculate the percentage changes in real and nominal GDP:
1. between 2017 and 2018
2. between 2018 and 2019
Calculate the GDP deflator for 2017, 2018 and 2019.

Question 2

Before computing the Consumer Price Index (CPI), the Ghana Statistical Service (GSS) surveys consumers to determine the “basket of goods” bought by a typical consumer. Assume that the GSS chooses 2018 as its base year and, consistent with the data shown in the Table I in Q.1 decides that the basket of goods in this economy should consist of 24 tins of milo, 16 bags of rice, 30 loaves of bread and 15 bottles of sobolo.

Calculate the inflation rate between 2018 and 2019.
Determine the purchasing power of the Ghana cedi in 2019 and interpret your answer.

b) In the mid-1920s, the American author F. Scott Fitzgerald wrote a somewhat comical article for the Saturday Evening Post magazine titled, “How to Live on $36,000 a Year”, in which he explained how he and his wife managed to spend their entire annual income of $36,000 without saving anything.

In the mid-1920s, the consumer price index was around 18; in 2010, the CPI was around 225. Using these figures, calculate how much Fitzgerald’s income would be worth in 2010’s dollars.

In 2010, Forbes magazine published a list of the highest-paid authors, showing that J. K. Rowling, author of the Harry Potter books, earned $10 million. After adjusting for the effects of inflation, who earned more: Fitzgerald or Rowling?

Expert Solution

1.

A.

Nominal GDP in 2017 = 8*24+32*16+2*30+1.5*15 = GHC 786.5

Nominal GDP in 2018 = 9.5*24 + 34*16 + 3*30 + 2*15 = GHC 892

Nominal GDP in 2019 = 10.5*35 + 35*22 + 3*35 + 2*20 = GHC 1282.5

===

B

2017 is the base year:

So,

Real GDP in 2017 = 8*24+32*16+2*30+1.5*15 = GHC 786.5

Real GDP in 2018 = 8*24 + 32*16 + 2*30 + 1.5*15 = GHC 786.5

Real GDP in 2019 = 8*35 + 32*22 + 2*35 + 1.5*20 = GHC 1084

===

C.

i.

% change in Real GDP between 2017 and 2018 = (786.5 - 786.5)/786.5

% change in Real GDP between 2017 and 2018 = 0%

% change in nominal GDP between 2017 and 2018 = (892-786.5)/786.5

% change in nominal GDP between 2017 and 2018 = 13.41%

==

ii.

% change in Real GDP between 2018 and 2019 = (1084 - 786.5)/786.5

% change in Real GDP between 2018 and 2019 = 37.83%

% change in Nominal GDP between 2018 and 2019 = (1282.5 - 892)/892

% change in Nominal GDP between 2018 and 2019 = 43.78%

===

D.

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

GDP deflator for 2017 = (786.5/786.5)*100

GDP deflator for 2017 = 100

GDP deflator for 2018 = (892/786.5)*100

GDP deflator for 2018 = 113.41

GDP deflator for 2019 = (1282.5/1084)*100

GDP deflator for 2019 = 118.31

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PL. repost other unanswered questions for their proper answers!

Rahul Sunny answered 2 years ago

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