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 100 $25 1200 $30 $5 $50 $5 $55 Haircuts 5000 4000 Textbooks 3000 3000 (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 100 $25 1200 $30 $5 $50 $5 $55 Haircuts 5000 4000 Textbooks 3000 3000 (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?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations

Section: Chapter Questions

Problem 13P

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