Using Year 2 as the base year. Nominal GDP: Year 1: 21000, Year 2: 31275, Year 3

Question

Using Year 2 as the base year.

Nominal GDP: Year 1: 21000, Year 2: 31275, Year 3: 34800

Real GDP: Year 1: 26900, Year 2: 31275, Year 3: 33000

A: Assume the Cpi Market basket consists of 1 violin, 10 pounds of apples, and 7 books. Calculate the cost of the market basket in each year.

Year 1:

Year 2:

Year 3:

B:Continue to assume Year 2 is is the base year. Calculate the CPI in each of the three years

Year 1:

Year 2:

Year 3:

C: Using CPI, calculate inflation for years 1 to 2 and year 2 to 3. Also, calculate inflation for years 1 to 3.

Year 1 to 2:

Year 2 to 3:

Year 1 to 3:

Year 1 Year 2 Year 3 Price; Quantity Price, Quantity Price; Quantity Violins $150; 100 $200; 120 $220; 120 Apples $4; 1000 $4.50; 950 $3.75; 1200 Books $10; 200 $12; 250 $13; 300

Explanation / Answer

a) Year 1 : 150 + 40+ 70 = $ 260

Year 2 = 200 + 45 + 84 = $329

Year 3 = 220 + 37 + 91 = $348

b) CPI = cost of basket in current period / cost of basket in base period ) * 100

CPI in year 1 = 260 / 329 ) * 100 = 79.02

CPI in year 2 = 100

CPI in year 3 = 348 /329) *100 = 105.77

c) inflation rate in year 1 to 2 = (CPI 2 - cpi 1 / cpi1 )* 100

inflation rate in year 1 to 2 = 100 - 79.02 / 79.02 ) *100 = 26.55 %

inflation rate in year 2 to 3 = 105.77 - 100 /100 ) *100 = 5.77%

inflation rate in year 1 to 3 = 105.77 - 79.02 / 79.02 ) *100 = 33.85%

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.