In the country below, only four items are produced, and all of the four are part of the CPI basket. Items Webcams Surgical masks Disinfectant wipes Dumbbells 2019 2020 2021 Quantity Price Quantity Price Quantity 10 $20 15 $25 14 100 $1 120 110 100 $5 120 110 10 $40 10 10 $3 $8 $50 Price $22 $2 $7 $45
In the country below, only four items are produced, and all of the four are part of the CPI basket. Items Webcams Surgical masks Disinfectant wipes Dumbbells 2019 2020 2021 Quantity Price Quantity Price Quantity 10 $20 15 $25 14 100 $1 120 110 100 $5 120 110 10 $40 10 10 $3 $8 $50 Price $22 $2 $7 $45
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:3. In the country below, only four items are produced, and all of the four are part of the CPI basket.
C.
e.
Items
Webcams
Surgical masks
Disinfectant wipes
Dumbbells
a.
What is the nominal GDP growth rate between 2019-2020, and between 2020-2021?
b. Given only the information you have, would real GDP growth be positive or negative between
2020 and 2021. Explain your answer.
What is the CPI in each year if the base year is 2019? Assume all four items have the same weight
in the CPI basket equal to one unit each
d. Using the CPI as the price index, what is the inflation rate between 2019 and 2020? And between
2020-2021?
f.
2019
2020
2021
Quantity | Price | Quantity Price | Quantity | Price
10
$20
15
$25
14
$22
100
$1
120
$3
110
$2
100
$5
$8
110
$7
10
$40
$50
10
$45
120
10
Without any calculation, would using the GDP deflator instead of CPI in (d) result in a higher or
lower inflation rate? Explain your answer.
What is the GDP deflator, how is it measured, and why is it considered a price index if it only
includes GDP in both its numerator and denominator?
Expert Solution
Step 1
Given:
|
Items
|
2019 | 2020 | 2021 | |||
| Quantity | Price | Quantity | Price | Quantity | Price | |
| Webcams | 10 | $20 | 15 | 25 | 14 | $22 |
| Surgical Masks | 100 | $1 | 120 | 3 | 110 | $2 |
| Disinfectant wipes | 100 | $5 | 120 | 8 | 110 | $7 |
| Dumbbells | 10 | $40 | 10 | 50 | 10 | $45 |
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