Question

Use the following data to answer questions 35-41:

The country of Fabrica produces and consumes textile goods. The following information tells you their production levels and prices for the only three goods they produce and consume:

• 2009:
• Towels -- Price = $12; Quantity = 120
• Shirts -- Price = $10; Quantity = 240
• Bottles of Fabric Softener -- Price = $1; Quantity = 50

• 2010:
• Towels -- Price = $20; Quantity = 150
• Shirts -- Price = $12; Quantity = 325
• Bottles of Fabric Softener -- Price = $5; Quantity = 90

What is the nominal GDP for each year?

	A.	2009 = $3890; 2010 = $5140
	B.	2009 = $3,720; 2010 = $7,100
	C.	2009 = $3890; 2010 = $7350
	D.	2009 = $5,530; 2010 = $7,350

Using 2009 as your base year, what would the real GDP be for each year?

	A.	2009 = $3,720; 2010 = $7,100
	B.	2009 = $3,890; 2010 = $5,140
	C.	2009 = $3,890; 2010 = $7,350
	D.	2009 = $5,530; 2010 = $7,350

Using 2009 as your base year, what would the GDP deflator be for each year?

	A.	2009 = 100; 2010 = 69.9
	B.	2009 = 100; 2010 = 132.1
	C.	2009 = 100; 2010 = 143
	D.	2009 = 100; 2010 = 188.9

Using a GDP deflator method, what would the inflation rate be?

	A.	32.1%
	B.	42.2%
	C.	43%
	D.	88.9%

Use the following basket for a CPI method: 12 towels, 24 shirts, and 5 bottles of fabric softener.

What is the cost of the basket for each year?

	A.	2009 = $375; 2010 = $515
	B.	2009 = $389; 2010 = $514
	C.	2009 = $389; 2010 = $553
	D.	2009 = $389; 2010 = $735

Using 2009 as your base year, what would the CPI be for each year?

	A.	2009 = 100; 2010 = 70.3
	B.	2009 = 100; 2010 = 142.2
	C.	2009 = 100; 2010 = 143
	D.	2009 = 100; 2010 = 188.9

Using a CPI method, what would the inflation rate be?

	A.	42.2%
	B.	43%
	C.	70.3%
	D.	88.9%

Answer 1

							Nominal GDP	Real GDP
	2009 ( Base year)	2010		2009 (Base year)	2010		2010
	Price	Quantity	Price	Quantity			Expenditure	Expenditure
Towels	12.00	120	20.00	150			1440	3000		1800
Shirts	10.00	240	12.00	325			2400	3900		3250
Bottles of fabric softener	1.00	50	5.00	90			50	450		90
1							3890	7350		5140
Nominal GDP: the value of final goods and services at current prices
Nominal GDP for 2009. Answer is Option C.
2. Option B.
Real GDP: The value of final goods and services at base year prices
Nominal GDP and Real GDP are the same in base year.
3)
GDP deflator = (Nominal GDP/Real GDP)100
Year	Nominal GDP	Real GDP (Base year 2009)	GDP Deflator
2009	3890	3890	100
2010	7350	5140	143.00
Answer is option C.
4)
Inflation rate using GDP deflator
Percentage change in deflator rate from 2009 to 2010.
((143-100)/100))*100=43%
Option C is answer.