Assume an economy in which only broccoli and cauliflower are produced. In year 1, 600 million kilograms of broccoli are produced and consumed and its price is $0.70 per kilogram, while 750 million kilograms of cauliflower are produced and consumed and its price is $0.90 per kilogram. In year 2, 650 million kilograms of broccoli are produced and consumed and its price is $0.75 per kilogram, while 700 million kilograms of cauliflower are produced and its price is $1.10 per kilogram. a. Using year 1 as the base year, the GDP price deflator in year 1 is ,and the GDP price deflator in year 2 is . (Round your responses to two decimal places as needed.) Based on these results for the GDP price deflator, the rate of inflation between years 1 and 2 is %. (Round your response to two decimal places as needed.) b. Using year 1 as the base year, the CPI in year 1 is and the CPI in year 2 is . (Round your responses to two decimal places as needed.) Based on these results for CPI, the CPI rate of inflation is %. (Round your response to two decimal places as needed.) Explain any differences in your results between parts (a) and (b). The rate of inflation calculated using the CPl is the rate of inflation calculated using the GDP price deflator. The weight attached to the change in the price of broccoli by the CPI rate of inflation is V the weight attached by the inflation rate calculated from GDP deflator, since the in year 1 is that value in year 2. This results in the observed comparison between parts (a) and (b), since the of broccoli from year 1 to year 2 is the corresponding change for cauliflower.
Assume an economy in which only broccoli and cauliflower are produced. In year 1, 600 million kilograms of broccoli are produced and consumed and its price is $0.70 per kilogram, while 750 million kilograms of cauliflower are produced and consumed and its price is $0.90 per kilogram. In year 2, 650 million kilograms of broccoli are produced and consumed and its price is $0.75 per kilogram, while 700 million kilograms of cauliflower are produced and its price is $1.10 per kilogram. a. Using year 1 as the base year, the GDP price deflator in year 1 is ,and the GDP price deflator in year 2 is . (Round your responses to two decimal places as needed.) Based on these results for the GDP price deflator, the rate of inflation between years 1 and 2 is %. (Round your response to two decimal places as needed.) b. Using year 1 as the base year, the CPI in year 1 is and the CPI in year 2 is . (Round your responses to two decimal places as needed.) Based on these results for CPI, the CPI rate of inflation is %. (Round your response to two decimal places as needed.) Explain any differences in your results between parts (a) and (b). The rate of inflation calculated using the CPl is the rate of inflation calculated using the GDP price deflator. The weight attached to the change in the price of broccoli by the CPI rate of inflation is V the weight attached by the inflation rate calculated from GDP deflator, since the in year 1 is that value in year 2. This results in the observed comparison between parts (a) and (b), since the of broccoli from year 1 to year 2 is the corresponding change for cauliflower.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Assume an economy in which only broccoli and cauliflower are produced. In year 1, 600 million kilograms of broccoli are produced and consumed and its price is
$0.70 per kilogram, while 750 million kilograms of cauliflower are produced and consumed and its price is $0.90 per kilogram. In year 2, 650 million kilograms of
broccoli are produced and consumed and its price is $0.75 per kilogram, while 700 million kilograms of cauliflower are produced and its price is $1.10 per kilogram.
a. Using year 1 as the base year, the GDP price deflator in year 1 is
and the GDP price deflator in year 2 is
(Round your responses to two decimal places as
needed.)
Based on these results for the GDP price deflator, the rate of inflation between years 1 and 2 is %. (Round your response to two decimal places as needed.)
b. Using year 1 as the base year, the CPI in year 1 is
and the CPI in year 2 is
(Round your responses to two decimal places as needed.)
Based on these results for CPI, the CPI rate of inflation is
%. (Round your response to two decimal places as needed.)
Explain any differences in your results between parts (a) and (b).
The rate of inflation calculated using the CPI is
V the rate of inflation calculated using the GDP price deflator. The weight attached to the change in the
price of broccoli by the CPI rate of inflation is
the weight attached by the inflation rate calculated from GDP deflator, since the
in year 1 is
that value in year 2. This results in the observed comparison between parts (a) and (b), since the
of broccoli from year 1 to year 2 is
the corresponding change for cauliflower.
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