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Consider an economy that produces and consumes hot dogs and hamburgers. In the following table are data for two different years.

                           2010             2015
Good            Quantity Price Quantity Price
Hot dogs           200     $2      250     $4

Hamburgers      200     $3      500     $4

a. Using 2010 as the base year, compute the following statistics for each year: nominal GDP, real GDP, the implicit price deflator for GDP, and a fixed-weight price index such as the CPI.

b. By what percentage did prices rise between 2010 and 2015? Give the answer for each good and also for the two measures of the overall price level. Compare the answers given by the Laspeyres and Paasche price indexes. Explain the difference.

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019

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Related questions

Consider an economy that produces and consumes bread and automobilies , In the following table are data for two different years

YEAR 2000 YEAR 2000 YEAR 2010 YEAR 2010
GOOD QUANTITY PRICE QUANTITY PRICE
AUTOMOBILES 100 $50000 120 $60.000
BREAD 500.000 $10 400.000 $20

a)Using the year 2000 as the base year ,compute the following statistics for each year : nominal GDP ,real GDP ,the implicit price deflator for GDP ,and a fixed-weight price index such as the CPI

b)How much have prices risen between 2000 and 2010? Compare the answers given by the Laspeyres and Paasche price indexes. Explain the difference

c) Supopose you are a senator writing a bill to index Social Sewcurity and federal pensions. That is ,yout bill will adjust these benefits to offset changes in the cost of living. Will you use the GDP deflator or the CPI? Why?

Table 24-7. The table below applies to an economy with only two goods — hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.

Year Price of hamburgers Price of hot dogs
2009 $5 $3
2010 5.50 3.30
2011 5.61 3.63

Refer to Table 24-7. Between 2009 and 2011, the cost of living increased by

A. 17 percent.
B. 14 percent.
C. 19 percent.
D. 6 percent.

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

A. the CPI is calculated more often than the GDP deflator is.
B. the CPI is easier to measure.
C. the GDP deflator cannot be used to gauge inflation.
D. the CPI better reflects the goods and services bought by consumers.

A COLA automatically raises the wage when:

A. the consumer price index increases.
B. the producer price index increases.
C. taxes increase.
D. GDP increases.

Consider an economy that produces Camembert and wine

Prices and production of Camembert

2010 2011 2012

Price $10 $14 $18

Quantity 20,000 20,500 21,000

Prices and production of wine

2010 2011 2012

Price $50 $52.5 $55

Quantity 3,000 4,000 6,000

For the calculations involving the fixed-weight and variable-weight indexes use 2010 as the base year.

a.) Compute nominal GDP for each year

b.) Compute the Fixed Weight Price Index for each year.

c.) Compute the Variable Weight Price Index for each year.

d.) Compute the rates of inflation in 2011 and 2012 using the fixed weight price index and the variable weight price index.

e.) Compute real GDP in 2010, 2011 and 2012 by deflating nominal GDP's in the above three years using the fixed weight price index and the variable weight price index.

f.) Compute real GDP growth rates in 2011 and 2012 using the fixed weight price index and the variable weight price index.

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