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 PriceJeans Haircuts Textbooks100 $25 1200 $30 5000 $5 4000 $5 3000 $50 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? (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 di↵er?(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 Textbooks
100 $25 1200 $30 5000 $5 4000 $5 3000 $50 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?
(b) Compute the 2019
(c) What is the growth rate of real GDP in this simple economy that is implied by each of these price indices?
Step by step
Solved in 4 steps
