Consider an economy producing only three commodities: jeans, haircuts, and textbooks. The quantities and prices of each good produced in 2018 and 2019 are given below. 2018 2019 Commodity Quantity Price Quantity Price Jeans Haircuts 100 $25 1200 $30 $5 $50 5000 4000 $5 Textbooks 3000 3000 $55 (a) Taking 2018 as the base year, compute the price index in 2019. How does the implied overall inflation rate compare to the price growth experienced by each commodity? Which item's price growth is closest to the overall inflation rate and why? 1 (b) Compute the 2019 GDP deflator. How does the implied rate of price growth compare with the inflation rate computed in (a)? Why do they differ? (c) What is the growth rate of real GDP in this simple economy that is implied by each of these price indices?
Consider an economy producing only three commodities: jeans, haircuts, and textbooks. The quantities and prices of each good produced in 2018 and 2019 are given below. 2018 2019 Commodity Quantity Price Quantity Price Jeans Haircuts 100 $25 1200 $30 $5 $50 5000 4000 $5 Textbooks 3000 3000 $55 (a) Taking 2018 as the base year, compute the price index in 2019. How does the implied overall inflation rate compare to the price growth experienced by each commodity? Which item's price growth is closest to the overall inflation rate and why? 1 (b) Compute the 2019 GDP deflator. How does the implied rate of price growth compare with the inflation rate computed in (a)? Why do they differ? (c) What is the growth rate of real GDP in this simple economy that is implied by each of these price indices?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Consider an economy producing only three commodities: jeans, haircuts, and textbooks.
The quantities and prices of each good produced in 2018 and 2019 are given below.
2018
2019
Commodity Quantity Price Quantity Price
Jeans
Haircuts
100
$25
1200
$30
$5
$50
5000
4000
$5
Textbooks
3000
3000
$55
(a) Taking 2018 as the base year, compute the price index in 2019. How does the implied
overall inflation rate compare to the price growth experienced by each commodity? Which
item's price growth is closest to the overall inflation rate and why?
1
(b) Compute the 2019 GDP deflator. How does the implied rate of price growth compare
with the inflation rate computed in (a)? Why do they differ?
(c) What is the growth rate of real GDP in this simple economy that is implied by each of
these price indices?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2dbfae71-7d8e-4b10-b5bb-19492e3613b6%2F24d5c734-0828-484f-8d58-d83313728338%2Fts1vqcr.png&w=3840&q=75)
Transcribed Image Text:Consider an economy producing only three commodities: jeans, haircuts, and textbooks.
The quantities and prices of each good produced in 2018 and 2019 are given below.
2018
2019
Commodity Quantity Price Quantity Price
Jeans
Haircuts
100
$25
1200
$30
$5
$50
5000
4000
$5
Textbooks
3000
3000
$55
(a) Taking 2018 as the base year, compute the price index in 2019. How does the implied
overall inflation rate compare to the price growth experienced by each commodity? Which
item's price growth is closest to the overall inflation rate and why?
1
(b) Compute the 2019 GDP deflator. How does the implied rate of price growth compare
with the inflation rate computed in (a)? Why do they differ?
(c) What is the growth rate of real GDP in this simple economy that is implied by each of
these price indices?
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