Question 2 Consider an economy that produces and consumes shoes and houses. In the table below are data for two different users. 2000 2001 Price of a house $120,000 $145,000 Number of houses produced 1000 1050 Price of a pair of shoe $150 $170 Number of pairs of shoes produced 650,000 525,000 Year 2000 Year 2001 Price of a house $120,000 Price of a pair of shoes $150 $170 Number of houses produced 1,000 Number of pairs of shoes 650,000 525,000 (a) What is the Consumer Price Index (CPI)? (b) Calculate the CPI for both years. (c) Calculate the rate of inflation for 2001 using the CPI. (d) Calculate the GDP deflator for both years. (e) Calculate the rate of inflation for 2001 using the GDP deflator. solution for D and E
Question 2
Consider an economy that produces and consumes shoes and houses. In the table below are data for two different users.
2000 | 2001 | |
$120,000 | $145,000 | |
Number of houses produced | 1000 | 1050 |
Price of a pair of shoe | $150 | $170 |
Number of pairs of shoes produced | 650,000 | 525,000 |
Year 2000 Year 2001 Price of a house $120,000 Price of a pair of shoes $150 $170 Number of houses produced 1,000 Number of pairs of shoes 650,000 525,000
(a) What is the
(b) Calculate the CPI for both years.
(c) Calculate the rate of inflation for 2001 using the CPI.
(d) Calculate the
(e) Calculate the rate of inflation for 2001 using the GDP deflator.
solution for D and E
Solution D
GDP Deflator measures the change in the price of goods and services produced in the country's economy.It helps us to compare the real economy activity from one year to another year.
Year --> | 2001 | 2001 | ||||
Items |
Price of 2000 | Quantity | Total | Price | Quantity | Total |
House | 120,000 | 1,050 | 126,000,000 | 145,000 | 1,050 | 152,250,000 |
Shoes | 150 | 525,000 | 78,750,000 | 170 | 525,000 | 89,250,000 |
Total | Real GDP | 204,750,000 | Nominial GDP | 241,500,000 |
Put values in a formula
GDP Deflator of 2000 is 100 (base year)
GDP Deflator of 2001 is 117.95
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