definition of the following please :) CALCULATING PRICE INDICES CALCULATING INFLATION RATE ALTERNATIVE CALCULATION OF REAL...

definition of the following please :)

CALCULATING PRICE INDICES
CALCULATING INFLATION RATE
ALTERNATIVE CALCULATION OF REAL GDP AND PRICE INDEX(GDP PRICE DEFLATOR)

Solutions

Expert Solution

1 - Price index measures the changes in the level of price in the current year with respect to base year. The Price index can be calculated as

Price of basket in current year / price of basket in base year * 100

This is also called the Consumer Price index

2 - Inflation rate is the rise in the average price level in the economy with respect to previous year. CPI is the measure used to calculate the inflation rate. Inflation rate can be calculated as -

Change in CPI with respect to previous year / CPI of previous year * 100.

The formula will yield the inflation rate

3 - Real GDP is the GDP which is GDP taking the inflation rates into consideration. They are not based upon the constant prices.

Real GDP = Current year quantity * base year price

GDP deflator is also a measure which is used to calculate the change in the price level.

GDP deflator = Nominal GDP / Real GDP * 100

Nominal GDP = Current year quantity * current year price.

Rahul Sunny answered 1 year ago

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