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ECON 20B Lecture Notes - Lecture 2: Deflation, Gdp Deflator, Nominal Interest Rate

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coffeehyena185
21 Jul 2016
School
UC-Irvine
Department
Economics
Course
ECON 20B
Professor
Wilima Wadhwa

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ECON 20B Full Course Notes
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Document Summary

We have to set weights based on quantities ( relative importance ) Cpi = (price of basket today [fixed in base year]/price of same basket in base year) x 100. Inflation rate = (cpi yr 2 cpi yr 1/cpi yr 1) x 100. $/c = . 20 (b) cpi 2013 100. Cpi 2014 3(100) + 1. 5 (50) + . 20 (500)/200 + 75 + 50 = 146 (using the basket/quantity from 2013 in numerator and base prices in denominator) 12 (a) fixed basket: 1 karaoke machine, 3 cds; 2014 is the base year. Cpi 2015 1(60) + 3(12)/1(40) + 3(10) * 100 = 137. 14. Gdp deflator (fixing the prices, letting quantities determine the calculator); cpi fixes quantities. Deflator in 2015 = 1320/980 * 100 = 134. 69. Deflator is more responsive to changes in consumer behavior. Cpi gives a nice snapshot of prices through time. 15/1 nyt * (1 hr/3. 36 * 60 min/1 hr) = 2. 7 min.

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Related Questions

karaoke machine karaoke machine CDs CDs
year quantity Price Quantity Price
2013 20 $50 100 $15
2014 30 $90 150 $20

a. Calculate CPI and compute the inflation rate of CPI. Use 2013 as the base year, and fix the basket at 1 karaoke machines and 3 CDs.

b. Calculate GDP deflator and compute the inflation rate using GDP deflator. Also use 2013 as the base year.

c. Is the inflation rate in 2014 the same using the two methods? Explain why or why not.

1.Consider an economy in which only food, clothing, and computers are produced. The established market basket is the following: 300 food, 40 clothing, 1 computer.

Quantities

  

Prices

Food

Clothing

Computers

Food

Clothing

Computers

5000

600

50

$4

$20

$600

5500

700

75

$5

$22

$500

 

 

Year

2013

2014

 

Using 2014 as the base year, calculate:

a)The nominal GDP in 2013 and 2014, as well as the nominal GDP growth rate.

b)The real GDP in 2013 and 2014, as well as the real GDP growth rate.

c)The GDP deflator in 2013 and 2014, as well as the GDP deflator inflation rate.

d)Calculate the CPI in 2013 and 2014, as well as the CPI inflation rate.

YEAR

P of Hot Dogs

Q of Hot Dogs

P of Hamburgers

Q of Hamburgers
2011 $1 100 $2 50
2012 (Base Year) $2 150 $3 100
2013 $3 200 $4 150

a. Calculate the CPI for 2011 and 2012. Using the CPI, calculate the rate of inflation between 2011 and 2012.

b. Calculate the GDP deflator for 2012 and 2013. Using the GDP deflator, calculate the rate of inflation between 2012 and 2013.

c. Recalculate the inflation rate between 2012 and 2013 using the CPI instead of the GDP deflator. In general, would the two methods yield the same inflation rate? Why?