The consumption expenditure component of GDP in current prices increased from $9

Question

The consumption expenditure component of GDP in current prices increased from $9,978.2 billion in May to $10,019.6 billion in June, an increase of 0.4%. Real personal consumption expenditures decreased from $9,185.5 billion in May to $9,173.5 billion in June, a decrease of 0.1%.

Source: Bureau of Economic Analysis, August 4, 2009

Calculate the PCEPI in May 2009 and June 2009.

The PCEPI in May 2009 is? June 2009?

How can real personal consumption expenditures decrease when personal consumption expenditures increase?

>>> Answer to 2 decimal places.

Explanation / Answer

Calculate the PCEPI in May 2009 -

Nominal consumption expenditure = $9,978.2 billion

Real consumption expenditure = $9,185.5 billion

PCEPI = [Nominal consumption expenditure/Real consumption expenditure] * 100

PCEPI = [$9,978.2 billion/$9,185.5 billion] * 100

PCEPI = 108.63

The PCEPI in MAY 2009 is 108.63

Calculate the PCEPI in June 2009 -

Nominal consumption expenditure = $10,019.6 billion

Real consumption expenditure = $9,173.5 billion

PCEPI = [Nominal consumption expenditure/Real consumption expenditure] * 100

PCEPI = [ $10,019.6 billion/$9,173.5 billion] * 100

PCEPI = 109.22

The PCEPI in JUNE 2009 is 109.22

The personal consumption expenditure price index is increasing between May and June.

When price level rises, real consumption decreases.

So, this increase in price index has resulted in a decrease in real personal consumption expenditure even when personal consumption expenditure is increasing.

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