Question

Year	Price of Fish	Quantity of Fish	Price of Pork	Quantity of Pork	Price of Beef	Quantity of Beef
2006	$10	200	$11	225	$12	275
2007	11	325	9	200	13	375
2008	12	500	10	325	16	475

e. Calculate Real GDP for 2007 and 2008 using the chain-weighted method.

f. Calculate the GDP deflator and inflation using Real GDP from part e.

Answer 1

e) Use 2006 as the base year

To calculate chain-weighted Real GDP in 2007:

Need 2006 quantities at 2006 price = 7775

2007 quantities at 2006 prices = 9950

2006 quantities at 2007 prices = 11x200+9x225+13x275=2200+2025+3575=7800

2007 quantities at 2007 prices = 10250

Growth rate of GDP with 2006 prices : 9950-7775/7775x100 = 27.9%

Growth rate of GDP using 2007 prices: 10250-7800/7800x100 = 31.4%

Average the two growth rates = 27.9+31.4/2 = 29.65%which is the chain weighted growth rate of real GDP for 2007

To calculate Real GDP in 2007 multiply 2006 real GDP with the growth rate:

[7775+(7775*29.65%)] = 7775+2305.28=10080.28

Repeat the same process for the year 2008:

2007 quantity at 2007 price=10250

2008 quantity at 2007 price=11x500+9x325+13x475=5500+2925+6175=14600

2007 quantity at 2008 price=12x325+10x200+16x375=3900+2000+6000=11900

2008 quantity at 2008 price=16850

Growth rate with 2007 price=14600-10250/10250x100=42.43%

Growth rate with 2008 price=16850-11900/11900x100=41.59%

Average growth rate = 42.43+41.59/2=42.01%

Real GDP in 2008 = 10080.28+(10080.28*42.01%) = 10080.28+4234.72=14315

f) GDP deflator

2006 = 100

2007 = 10250/10080.28x100 = 101.6

2008 = 16850/14315x100 = 117.7

Inflation

2007 = 101.6-100/100 = 1.6%

2009 = 117.7-101.6/101.6x100 = 15.84%