Measuring percentage change in price using CPI and GDP deflator.

Question

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Answer 1

Question

Chapter 11, Problem 5PA

Subpart (a):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (a):

Expert Solution

Explanation of Solution

Cost of market for the basket can be calculated by using the following formula.

Cost of Market basket=((Price1×Quantity1)+(Price2×Quantity2)+...+(Pricen×Quantityn)) (1)

Substitute the respective values in Equation (2) to calculate the cost of market basket in the year 2017:

Cost of the market basket2017=1×40+3×10=70

Cost of market basket for the year 2017 is $70.

Substitute the respective values in Equation (2) to calculate the cost of market basket in the year 2018:

Cost of the market basket2018=1×60+3×12=96

Cost of market basket for the year 2018 is $96.

CPI can be calculated by using the following formula:

CPI =Cost of Market basket in current yearPrice of basket in the base year×100 (2)

Substitute the respective values in Equation (2) to calculate the CPI in the year 2017:

CPI2017=7070×100=100

CPI in the year 2017 is 100.

Substitute the respective values in Equation (2) to calculate the CPI in the year 2017:

CPI2018=9670×100=137.14

CPI in the year 2018 is 137.14.

The overall change in price using CPI is calculated as follows:

Overall percentage change in price =CPIPresent−CPIPreviousCPIPrevious×100=137.14−100100×100=37.14%

Thus the overall change in price is 37.14% which is the inflation rate for 2018 computed using CPI. Thus the inflation rate for 2018 is 37.14%.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Subpart (b):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (b):

Expert Solution

Explanation of Solution

The Nominal GDP can be calculated by using the following formula:

Nominal GDP=(Present price1×Quantity1)+(Present price1×Quantity2)+...+(Present pricen×Quantityn) (3)

Substitute the respective values in Equation (3) to calculate the nominal GDP in the year 2017:

Nominal GDP2017=(10×40)+(30×10)=700

Nominal GDP in the year 2017 is $700.

Substitute the respective values in Equation (3) to calculate the nominal GDP in the year 2018:

Nominal GDP2018=(12×60)+(50×12)=1,320

Nominal GDP in the year 2018 is $1,320.

The real GDP can be calculated by using the following formula:

Real GDP=(Base year price1×Quantity1)+(Base year price1×Quantity2)+...+(Base year pricen×Quantityn) (4)

Substitute the respective values in Equation (4) to calculate the real GDP in the year 2017:

Real GDP2017=10×40+30×10=700

Real GDP in the year 2017 is $700.

Substitute the respective values in Equation (4) to calculate the real GDP in the year 2017:

Real GDP2018=12×40+50×10=980

Real GDP in the year 2018 is $980.

GDP deflator can be calculated by using the following formula:

GDP deflator =Nominal GDPReal GDP×100 (5)

Substitute the respective values in equation (5) to calculate the GDP deflator in year 2017:

GDP deflator2017=700700×100=100

GDP deflator in the year 2017 is 100.

Substitute the respective values in equation (5) to calculate the GDP deflator in year 2018:

GDP deflator2018=1320980×100=134.69

GDP deflator in the year 2018 is 134.69.

Using 2017 as base year, the GDP deflator for 2017 is calculated as 100 and for 2018 is 134.69.

The overall change in price using CPI is calculated as follows:

Inflation rate 2018=GDP deflatorPresent−GDP deflatorPreviousGDP deflatorPrevious×100=134.69−100100×100=34.69%

Thus the inflation rate for 2018 computed using GDP inflator is 34.69%.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Subpart (c):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (c):

Expert Solution

Explanation of Solution

No, the inflation rate is not the same. It is calculated as 37.14% using CPI whereas it is found to be 34.69% when computed using GDP deflator. This is because, the rate of inflation computed by the CPI holds the basket of goods and services constant; and on the other hand, the GDP deflator allows it to change and holds the prices constant.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

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a) Assume there are two firms, 1 and 2, competing as Cournot duopolists in a market, selling a homogeneous product. Demand is given by p = 36 – (q1 + q2), where p is price and q1 and q2 are the outputs of firms 1 and 2 respectively. Each firm faces a marginal cost of 6 per unit of output and no fixed cost. Find each firm’s optimal output, the price at which they sell, each firm’s profit , and consumer surplus. b) Now assume that the firms face the same costs, but horizontally differentiate their product, so that firm 1 faces demand p1 = 36 – (q1 + q2/2) and firm 2 faces demand p2 = 36 – (q1/2 + q2). Assume Cournot competition. Calculate the new equilibrium prices and outputs for each firm, consumer surplus and profits. c) Now assume that rather than facing a given degree of product differentiation, the firms can choosehowdifferentiatedtheirproductsare.Thisisequivalenttoinversedemandequationsp1 =36 –(q1 +θq2)andp2 =36–(θq1 +q2),0≤θ≤1,withθdeterminedbythefirms’choicesofproduct…

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Answer 2

Question

Chapter 11, Problem 5PA

Subpart (a):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (a):

Expert Solution

Explanation of Solution

Cost of market for the basket can be calculated by using the following formula.

Cost of Market basket=((Price1×Quantity1)+(Price2×Quantity2)+...+(Pricen×Quantityn)) (1)

Substitute the respective values in Equation (2) to calculate the cost of market basket in the year 2017:

Cost of the market basket2017=1×40+3×10=70

Cost of market basket for the year 2017 is $70.

Substitute the respective values in Equation (2) to calculate the cost of market basket in the year 2018:

Cost of the market basket2018=1×60+3×12=96

Cost of market basket for the year 2018 is $96.

CPI can be calculated by using the following formula:

CPI =Cost of Market basket in current yearPrice of basket in the base year×100 (2)

Substitute the respective values in Equation (2) to calculate the CPI in the year 2017:

CPI2017=7070×100=100

CPI in the year 2017 is 100.

Substitute the respective values in Equation (2) to calculate the CPI in the year 2017:

CPI2018=9670×100=137.14

CPI in the year 2018 is 137.14.

The overall change in price using CPI is calculated as follows:

Overall percentage change in price =CPIPresent−CPIPreviousCPIPrevious×100=137.14−100100×100=37.14%

Thus the overall change in price is 37.14% which is the inflation rate for 2018 computed using CPI. Thus the inflation rate for 2018 is 37.14%.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Subpart (b):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (b):

Expert Solution

Explanation of Solution

The Nominal GDP can be calculated by using the following formula:

Nominal GDP=(Present price1×Quantity1)+(Present price1×Quantity2)+...+(Present pricen×Quantityn) (3)

Substitute the respective values in Equation (3) to calculate the nominal GDP in the year 2017:

Nominal GDP2017=(10×40)+(30×10)=700

Nominal GDP in the year 2017 is $700.

Substitute the respective values in Equation (3) to calculate the nominal GDP in the year 2018:

Nominal GDP2018=(12×60)+(50×12)=1,320

Nominal GDP in the year 2018 is $1,320.

The real GDP can be calculated by using the following formula:

Real GDP=(Base year price1×Quantity1)+(Base year price1×Quantity2)+...+(Base year pricen×Quantityn) (4)

Substitute the respective values in Equation (4) to calculate the real GDP in the year 2017:

Real GDP2017=10×40+30×10=700

Real GDP in the year 2017 is $700.

Substitute the respective values in Equation (4) to calculate the real GDP in the year 2017:

Real GDP2018=12×40+50×10=980

Real GDP in the year 2018 is $980.

GDP deflator can be calculated by using the following formula:

GDP deflator =Nominal GDPReal GDP×100 (5)

Substitute the respective values in equation (5) to calculate the GDP deflator in year 2017:

GDP deflator2017=700700×100=100

GDP deflator in the year 2017 is 100.

Substitute the respective values in equation (5) to calculate the GDP deflator in year 2018:

GDP deflator2018=1320980×100=134.69

GDP deflator in the year 2018 is 134.69.

Using 2017 as base year, the GDP deflator for 2017 is calculated as 100 and for 2018 is 134.69.

The overall change in price using CPI is calculated as follows:

Inflation rate 2018=GDP deflatorPresent−GDP deflatorPreviousGDP deflatorPrevious×100=134.69−100100×100=34.69%

Thus the inflation rate for 2018 computed using GDP inflator is 34.69%.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Subpart (c):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (c):

Expert Solution

Explanation of Solution

No, the inflation rate is not the same. It is calculated as 37.14% using CPI whereas it is found to be 34.69% when computed using GDP deflator. This is because, the rate of inflation computed by the CPI holds the basket of goods and services constant; and on the other hand, the GDP deflator allows it to change and holds the prices constant.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

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Answer 3

Question

Chapter 11, Problem 5PA

Subpart (a):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (a):

Expert Solution

Explanation of Solution

Cost of market for the basket can be calculated by using the following formula.

Cost of Market basket=((Price1×Quantity1)+(Price2×Quantity2)+...+(Pricen×Quantityn)) (1)

Substitute the respective values in Equation (2) to calculate the cost of market basket in the year 2017:

Cost of the market basket2017=1×40+3×10=70

Cost of market basket for the year 2017 is $70.

Substitute the respective values in Equation (2) to calculate the cost of market basket in the year 2018:

Cost of the market basket2018=1×60+3×12=96

Cost of market basket for the year 2018 is $96.

CPI can be calculated by using the following formula:

CPI =Cost of Market basket in current yearPrice of basket in the base year×100 (2)

Substitute the respective values in Equation (2) to calculate the CPI in the year 2017:

CPI2017=7070×100=100

CPI in the year 2017 is 100.

Substitute the respective values in Equation (2) to calculate the CPI in the year 2017:

CPI2018=9670×100=137.14

CPI in the year 2018 is 137.14.

The overall change in price using CPI is calculated as follows:

Overall percentage change in price =CPIPresent−CPIPreviousCPIPrevious×100=137.14−100100×100=37.14%

Thus the overall change in price is 37.14% which is the inflation rate for 2018 computed using CPI. Thus the inflation rate for 2018 is 37.14%.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Subpart (b):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (b):

Expert Solution

Explanation of Solution

The Nominal GDP can be calculated by using the following formula:

Nominal GDP=(Present price1×Quantity1)+(Present price1×Quantity2)+...+(Present pricen×Quantityn) (3)

Substitute the respective values in Equation (3) to calculate the nominal GDP in the year 2017:

Nominal GDP2017=(10×40)+(30×10)=700

Nominal GDP in the year 2017 is $700.

Substitute the respective values in Equation (3) to calculate the nominal GDP in the year 2018:

Nominal GDP2018=(12×60)+(50×12)=1,320

Nominal GDP in the year 2018 is $1,320.

The real GDP can be calculated by using the following formula:

Real GDP=(Base year price1×Quantity1)+(Base year price1×Quantity2)+...+(Base year pricen×Quantityn) (4)

Substitute the respective values in Equation (4) to calculate the real GDP in the year 2017:

Real GDP2017=10×40+30×10=700

Real GDP in the year 2017 is $700.

Substitute the respective values in Equation (4) to calculate the real GDP in the year 2017:

Real GDP2018=12×40+50×10=980

Real GDP in the year 2018 is $980.

GDP deflator can be calculated by using the following formula:

GDP deflator =Nominal GDPReal GDP×100 (5)

Substitute the respective values in equation (5) to calculate the GDP deflator in year 2017:

GDP deflator2017=700700×100=100

GDP deflator in the year 2017 is 100.

Substitute the respective values in equation (5) to calculate the GDP deflator in year 2018:

GDP deflator2018=1320980×100=134.69

GDP deflator in the year 2018 is 134.69.

Using 2017 as base year, the GDP deflator for 2017 is calculated as 100 and for 2018 is 134.69.

The overall change in price using CPI is calculated as follows:

Inflation rate 2018=GDP deflatorPresent−GDP deflatorPreviousGDP deflatorPrevious×100=134.69−100100×100=34.69%

Thus the inflation rate for 2018 computed using GDP inflator is 34.69%.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Subpart (c):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (c):

Expert Solution

Explanation of Solution

No, the inflation rate is not the same. It is calculated as 37.14% using CPI whereas it is found to be 34.69% when computed using GDP deflator. This is because, the rate of inflation computed by the CPI holds the basket of goods and services constant; and on the other hand, the GDP deflator allows it to change and holds the prices constant.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

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Answer 4

Question

Chapter 11, Problem 5PA

Subpart (a):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (a):

Expert Solution

Explanation of Solution

Cost of market for the basket can be calculated by using the following formula.

Cost of Market basket=((Price1×Quantity1)+(Price2×Quantity2)+...+(Pricen×Quantityn)) (1)

Substitute the respective values in Equation (2) to calculate the cost of market basket in the year 2017:

Cost of the market basket2017=1×40+3×10=70

Cost of market basket for the year 2017 is $70.

Substitute the respective values in Equation (2) to calculate the cost of market basket in the year 2018:

Cost of the market basket2018=1×60+3×12=96

Cost of market basket for the year 2018 is $96.

CPI can be calculated by using the following formula:

CPI =Cost of Market basket in current yearPrice of basket in the base year×100 (2)

Substitute the respective values in Equation (2) to calculate the CPI in the year 2017:

CPI2017=7070×100=100

CPI in the year 2017 is 100.

Substitute the respective values in Equation (2) to calculate the CPI in the year 2017:

CPI2018=9670×100=137.14

CPI in the year 2018 is 137.14.

The overall change in price using CPI is calculated as follows:

Overall percentage change in price =CPIPresent−CPIPreviousCPIPrevious×100=137.14−100100×100=37.14%

Thus the overall change in price is 37.14% which is the inflation rate for 2018 computed using CPI. Thus the inflation rate for 2018 is 37.14%.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Subpart (b):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (b):

Expert Solution

Explanation of Solution

The Nominal GDP can be calculated by using the following formula:

Nominal GDP=(Present price1×Quantity1)+(Present price1×Quantity2)+...+(Present pricen×Quantityn) (3)

Substitute the respective values in Equation (3) to calculate the nominal GDP in the year 2017:

Nominal GDP2017=(10×40)+(30×10)=700

Nominal GDP in the year 2017 is $700.

Substitute the respective values in Equation (3) to calculate the nominal GDP in the year 2018:

Nominal GDP2018=(12×60)+(50×12)=1,320

Nominal GDP in the year 2018 is $1,320.

The real GDP can be calculated by using the following formula:

Real GDP=(Base year price1×Quantity1)+(Base year price1×Quantity2)+...+(Base year pricen×Quantityn) (4)

Substitute the respective values in Equation (4) to calculate the real GDP in the year 2017:

Real GDP2017=10×40+30×10=700

Real GDP in the year 2017 is $700.

Substitute the respective values in Equation (4) to calculate the real GDP in the year 2017:

Real GDP2018=12×40+50×10=980

Real GDP in the year 2018 is $980.

GDP deflator can be calculated by using the following formula:

GDP deflator =Nominal GDPReal GDP×100 (5)

Substitute the respective values in equation (5) to calculate the GDP deflator in year 2017:

GDP deflator2017=700700×100=100

GDP deflator in the year 2017 is 100.

Substitute the respective values in equation (5) to calculate the GDP deflator in year 2018:

GDP deflator2018=1320980×100=134.69

GDP deflator in the year 2018 is 134.69.

Using 2017 as base year, the GDP deflator for 2017 is calculated as 100 and for 2018 is 134.69.

The overall change in price using CPI is calculated as follows:

Inflation rate 2018=GDP deflatorPresent−GDP deflatorPreviousGDP deflatorPrevious×100=134.69−100100×100=34.69%

Thus the inflation rate for 2018 computed using GDP inflator is 34.69%.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Subpart (c):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (c):

Expert Solution

Explanation of Solution

No, the inflation rate is not the same. It is calculated as 37.14% using CPI whereas it is found to be 34.69% when computed using GDP deflator. This is because, the rate of inflation computed by the CPI holds the basket of goods and services constant; and on the other hand, the GDP deflator allows it to change and holds the prices constant.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

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Answer 5

Chapter 11, Problem 5PA

Subpart (a):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (a):

Expert Solution

Explanation of Solution

Cost of market for the basket can be calculated by using the following formula.

Cost of Market basket=((Price1×Quantity1)+(Price2×Quantity2)+...+(Pricen×Quantityn)) (1)

Substitute the respective values in Equation (2) to calculate the cost of market basket in the year 2017:

Cost of the market basket2017=1×40+3×10=70

Cost of market basket for the year 2017 is $70.

Substitute the respective values in Equation (2) to calculate the cost of market basket in the year 2018:

Cost of the market basket2018=1×60+3×12=96

Cost of market basket for the year 2018 is $96.

CPI can be calculated by using the following formula:

CPI =Cost of Market basket in current yearPrice of basket in the base year×100 (2)

Substitute the respective values in Equation (2) to calculate the CPI in the year 2017:

CPI2017=7070×100=100

CPI in the year 2017 is 100.

Substitute the respective values in Equation (2) to calculate the CPI in the year 2017:

CPI2018=9670×100=137.14

CPI in the year 2018 is 137.14.

The overall change in price using CPI is calculated as follows:

Overall percentage change in price =CPIPresent−CPIPreviousCPIPrevious×100=137.14−100100×100=37.14%

Thus the overall change in price is 37.14% which is the inflation rate for 2018 computed using CPI. Thus the inflation rate for 2018 is 37.14%.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Subpart (b):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (b):

Expert Solution

Explanation of Solution

The Nominal GDP can be calculated by using the following formula:

Nominal GDP=(Present price1×Quantity1)+(Present price1×Quantity2)+...+(Present pricen×Quantityn) (3)

Substitute the respective values in Equation (3) to calculate the nominal GDP in the year 2017:

Nominal GDP2017=(10×40)+(30×10)=700

Nominal GDP in the year 2017 is $700.

Substitute the respective values in Equation (3) to calculate the nominal GDP in the year 2018:

Nominal GDP2018=(12×60)+(50×12)=1,320

Nominal GDP in the year 2018 is $1,320.

The real GDP can be calculated by using the following formula:

Real GDP=(Base year price1×Quantity1)+(Base year price1×Quantity2)+...+(Base year pricen×Quantityn) (4)

Substitute the respective values in Equation (4) to calculate the real GDP in the year 2017:

Real GDP2017=10×40+30×10=700

Real GDP in the year 2017 is $700.

Substitute the respective values in Equation (4) to calculate the real GDP in the year 2017:

Real GDP2018=12×40+50×10=980

Real GDP in the year 2018 is $980.

GDP deflator can be calculated by using the following formula:

GDP deflator =Nominal GDPReal GDP×100 (5)

Substitute the respective values in equation (5) to calculate the GDP deflator in year 2017:

GDP deflator2017=700700×100=100

GDP deflator in the year 2017 is 100.

Substitute the respective values in equation (5) to calculate the GDP deflator in year 2018:

GDP deflator2018=1320980×100=134.69

GDP deflator in the year 2018 is 134.69.

Using 2017 as base year, the GDP deflator for 2017 is calculated as 100 and for 2018 is 134.69.

The overall change in price using CPI is calculated as follows:

Inflation rate 2018=GDP deflatorPresent−GDP deflatorPreviousGDP deflatorPrevious×100=134.69−100100×100=34.69%

Thus the inflation rate for 2018 computed using GDP inflator is 34.69%.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Subpart (c):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (c):

Expert Solution

Explanation of Solution

No, the inflation rate is not the same. It is calculated as 37.14% using CPI whereas it is found to be 34.69% when computed using GDP deflator. This is because, the rate of inflation computed by the CPI holds the basket of goods and services constant; and on the other hand, the GDP deflator allows it to change and holds the prices constant.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Answer 6

Chapter 11, Problem 5PA

Subpart (a):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (a):

Expert Solution

Explanation of Solution

Cost of market for the basket can be calculated by using the following formula.

Cost of Market basket=((Price1×Quantity1)+(Price2×Quantity2)+...+(Pricen×Quantityn)) (1)

Substitute the respective values in Equation (2) to calculate the cost of market basket in the year 2017:

Cost of the market basket2017=1×40+3×10=70

Cost of market basket for the year 2017 is $70.

Substitute the respective values in Equation (2) to calculate the cost of market basket in the year 2018:

Cost of the market basket2018=1×60+3×12=96

Cost of market basket for the year 2018 is $96.

CPI can be calculated by using the following formula:

CPI =Cost of Market basket in current yearPrice of basket in the base year×100 (2)

Substitute the respective values in Equation (2) to calculate the CPI in the year 2017:

CPI2017=7070×100=100

CPI in the year 2017 is 100.

Substitute the respective values in Equation (2) to calculate the CPI in the year 2017:

CPI2018=9670×100=137.14

CPI in the year 2018 is 137.14.

The overall change in price using CPI is calculated as follows:

Overall percentage change in price =CPIPresent−CPIPreviousCPIPrevious×100=137.14−100100×100=37.14%

Thus the overall change in price is 37.14% which is the inflation rate for 2018 computed using CPI. Thus the inflation rate for 2018 is 37.14%.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Answer 7

Chapter 11, Problem 5PA

Subpart (a):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Answer 8

Subpart (a):

Expert Solution

Explanation of Solution

Cost of market for the basket can be calculated by using the following formula.

Cost of Market basket=((Price1×Quantity1)+(Price2×Quantity2)+...+(Pricen×Quantityn)) (1)

Substitute the respective values in Equation (2) to calculate the cost of market basket in the year 2017:

Cost of the market basket2017=1×40+3×10=70

Cost of market basket for the year 2017 is $70.

Substitute the respective values in Equation (2) to calculate the cost of market basket in the year 2018:

Cost of the market basket2018=1×60+3×12=96

Cost of market basket for the year 2018 is $96.

CPI can be calculated by using the following formula:

CPI =Cost of Market basket in current yearPrice of basket in the base year×100 (2)

Substitute the respective values in Equation (2) to calculate the CPI in the year 2017:

CPI2017=7070×100=100

CPI in the year 2017 is 100.

Substitute the respective values in Equation (2) to calculate the CPI in the year 2017:

CPI2018=9670×100=137.14

CPI in the year 2018 is 137.14.

The overall change in price using CPI is calculated as follows:

Overall percentage change in price =CPIPresent−CPIPreviousCPIPrevious×100=137.14−100100×100=37.14%

Thus the overall change in price is 37.14% which is the inflation rate for 2018 computed using CPI. Thus the inflation rate for 2018 is 37.14%.

Answer 9

Subpart (a):

Expert Solution

Answer 10

Subpart (a):

Expert Solution

Answer 11

Expert Solution

Answer 12

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Answer 13

Subpart (b):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (b):

Expert Solution

Explanation of Solution

The Nominal GDP can be calculated by using the following formula:

Nominal GDP=(Present price1×Quantity1)+(Present price1×Quantity2)+...+(Present pricen×Quantityn) (3)

Substitute the respective values in Equation (3) to calculate the nominal GDP in the year 2017:

Nominal GDP2017=(10×40)+(30×10)=700

Nominal GDP in the year 2017 is $700.

Substitute the respective values in Equation (3) to calculate the nominal GDP in the year 2018:

Nominal GDP2018=(12×60)+(50×12)=1,320

Nominal GDP in the year 2018 is $1,320.

The real GDP can be calculated by using the following formula:

Real GDP=(Base year price1×Quantity1)+(Base year price1×Quantity2)+...+(Base year pricen×Quantityn) (4)

Substitute the respective values in Equation (4) to calculate the real GDP in the year 2017:

Real GDP2017=10×40+30×10=700

Real GDP in the year 2017 is $700.

Substitute the respective values in Equation (4) to calculate the real GDP in the year 2017:

Real GDP2018=12×40+50×10=980

Real GDP in the year 2018 is $980.

GDP deflator can be calculated by using the following formula:

GDP deflator =Nominal GDPReal GDP×100 (5)

Substitute the respective values in equation (5) to calculate the GDP deflator in year 2017:

GDP deflator2017=700700×100=100

GDP deflator in the year 2017 is 100.

Substitute the respective values in equation (5) to calculate the GDP deflator in year 2018:

GDP deflator2018=1320980×100=134.69

GDP deflator in the year 2018 is 134.69.

Using 2017 as base year, the GDP deflator for 2017 is calculated as 100 and for 2018 is 134.69.

The overall change in price using CPI is calculated as follows:

Inflation rate 2018=GDP deflatorPresent−GDP deflatorPreviousGDP deflatorPrevious×100=134.69−100100×100=34.69%

Thus the inflation rate for 2018 computed using GDP inflator is 34.69%.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Answer 14

Subpart (b):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Answer 15

Subpart (b):

Expert Solution

Explanation of Solution

The Nominal GDP can be calculated by using the following formula:

Nominal GDP=(Present price1×Quantity1)+(Present price1×Quantity2)+...+(Present pricen×Quantityn) (3)

Substitute the respective values in Equation (3) to calculate the nominal GDP in the year 2017:

Nominal GDP2017=(10×40)+(30×10)=700

Nominal GDP in the year 2017 is $700.

Substitute the respective values in Equation (3) to calculate the nominal GDP in the year 2018:

Nominal GDP2018=(12×60)+(50×12)=1,320

Nominal GDP in the year 2018 is $1,320.

The real GDP can be calculated by using the following formula:

Real GDP=(Base year price1×Quantity1)+(Base year price1×Quantity2)+...+(Base year pricen×Quantityn) (4)

Substitute the respective values in Equation (4) to calculate the real GDP in the year 2017:

Real GDP2017=10×40+30×10=700

Real GDP in the year 2017 is $700.

Substitute the respective values in Equation (4) to calculate the real GDP in the year 2017:

Real GDP2018=12×40+50×10=980

Real GDP in the year 2018 is $980.

GDP deflator can be calculated by using the following formula:

GDP deflator =Nominal GDPReal GDP×100 (5)

Substitute the respective values in equation (5) to calculate the GDP deflator in year 2017:

GDP deflator2017=700700×100=100

GDP deflator in the year 2017 is 100.

Substitute the respective values in equation (5) to calculate the GDP deflator in year 2018:

GDP deflator2018=1320980×100=134.69

GDP deflator in the year 2018 is 134.69.

Using 2017 as base year, the GDP deflator for 2017 is calculated as 100 and for 2018 is 134.69.

The overall change in price using CPI is calculated as follows:

Inflation rate 2018=GDP deflatorPresent−GDP deflatorPreviousGDP deflatorPrevious×100=134.69−100100×100=34.69%

Thus the inflation rate for 2018 computed using GDP inflator is 34.69%.

Answer 16

Subpart (b):

Expert Solution

Answer 17

Subpart (b):

Expert Solution

Answer 18

Expert Solution

Answer 19

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Answer 20

Subpart (c):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Subpart (c):

Expert Solution

Explanation of Solution

No, the inflation rate is not the same. It is calculated as 37.14% using CPI whereas it is found to be 34.69% when computed using GDP deflator. This is because, the rate of inflation computed by the CPI holds the basket of goods and services constant; and on the other hand, the GDP deflator allows it to change and holds the prices constant.

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.

Answer 21

Subpart (c):

To determine

Measuring percentage change in price using CPI and GDP deflator.

Answer 22

Subpart (c):

Expert Solution

Explanation of Solution

No, the inflation rate is not the same. It is calculated as 37.14% using CPI whereas it is found to be 34.69% when computed using GDP deflator. This is because, the rate of inflation computed by the CPI holds the basket of goods and services constant; and on the other hand, the GDP deflator allows it to change and holds the prices constant.

Answer 23

Subpart (c):

Expert Solution

Answer 24

Subpart (c):

Expert Solution

Answer 25

Expert Solution

Answer 26

Economics Concept Introduction

Concept Introduction:

Consumer Price index (CPI): It is a measure that examines the changes in price levels of a basket of consumer goods and services for the present time from the base year.

Inflation rate: Inflation rate refers to the rate of change in the price level.

GDP deflator: Gross Domestic Product (GDP) deflator is the measure of inflation.

Real GDP: Real GDP refers to the market value of all final goods and services produced in an economy during an accounting year, and measured in constant prices.

Nominal GDP: Nominal GDP refers to the market value of all final goods and services produced in an economy during an accounting year, measured in current prices.