Question 1 (40 Points) Year Price of TV Price of Car Quantity of TV Quantity of
ID: 1169053 • Letter: Q
Question
Question 1 (40 Points)
Year
Price of TV
Price of Car
Quantity of TV
Quantity of Car
2000
$1000
$20000
100
100
2001
$1200
$21000
130
80
2002
$1400
$22000
170
120
2003
$1600
$23000
210
150
Take 2002 as the base year. Calculate for all the years
1)Inflation Rate
2)Calculate Real GDP growth rate by chain weighted method
3)Calculate inflation rate by chain weighted method
Please explain all these questions and tell me the difference between 1 and 3.
Year
Price of TV
Price of Car
Quantity of TV
Quantity of Car
2000
$1000
$20000
100
100
2001
$1200
$21000
130
80
2002
$1400
$22000
170
120
2003
$1600
$23000
210
150
Explanation / Answer
(1) Inflation rate
Inflation rate is the change in real GDP from year to year. So we need to calculate Real GDP first.
REAL GDP CALCULATIONS
Real GDP is the sum of (Base year quantity x Current year prices) for all goods.
So, Real GDP in:
2000: (170 x $1,000) + (120 x $20,000) = $2,570,000
2001: (170 x $1,200) + (120 x $21,000) = $2,724,000
2002: (170 x $1,400) + (120 x $22,000) = $2,878,000
2003: (170 x $1,600) + (120 x $23,000) = $3,032,000
So,
Inflation rate, 2001 = (2,724,000 - 2,570,000) / 2,570,000 x 100 = 5.99%
Inflation rate, 2002 = (2,878,000 - 2,724,000) / 2,724,000 x 100 = 5.65%
Inflation rate, 2001 = (3,032,000 - 2,878,000) / 2,878,000 x 100 = 5.35%
NOTE: Out of 3 questions, the first question is answered.
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