Here is a table showing the outputs of Atlantis in recent years: The regular con

Question

Here is a table showing the outputs of Atlantis in recent years:

The regular consumer in Atlantis consumes 500 bananas and 1 boat per year, which is the bundle for CPI calculation.

A) Taking 2010 as the base year, calculate the GDP deflator measured inflation for year 2011, 2012 and 2013.

B) Taking 2013 as the base year, calculate the GDP deflator measured inflation for year 2011, 2012 and 2013.

C) Taking 2010 as the base year, calculate the CPI measured inflation for year 2011, 2012 and 2013.

D) Taking 2013 as the base year, calculate the CPI measured inflation for year 2011, 2012 and 2013.

Year Banana Unit Price Boat Unit Price Aircraft Unit Price 2010 5,600,000 1 3,500 1,000 1 5,000,000,000 2011 6,400,000 2 4,000 1,500 2 5,000,000,000 2012 7,200,000 3 4,000 2,000 3 5,000,000,000 2013 6,000,000 4 3,000 2,500 4 5,000,000,000

Explanation / Answer

We all know that nominal GDP is calculated on that years current price and real GDP is calculated on base year price because it is inflation adjusted amount.

So please follow the following table

Now GDP deflator = (Nominal GDP / Real GDP) * 100

a. Taking Base Year as 2010 GDP deflator measured inflation for year 2011, 2012 and 2013 is -

b. Taking Base Year as 2013 GDP deflator measured inflation for year 2011, 2012 and 2013 is -

CPI is calculated as the following formula -

CPI = (market basket at current price / market basket at base year) * 100

Market basket at 2010 prices = (5,600,000 * 1) + (3,500 * 1,000) + (1 * 5,000,000,000) = 5009100000

c. Taking 2010 as the base year, calculate the CPI measured inflation for year 2011, 2012 and 2013 -

d. Taking 2013 as the base year, calculate the CPI measured inflation for year 2011, 2012 and 2013 -

Market basket at 2013 prices = (6,000,000 * 4) + (3,000 * 2,500) + (4 * 5,000,000,000) = 20031500000

Year Nominal GDP 2011 (6,400,000 * 2) + (4,000 * 1,500) + (2 * 5,000,000,000) = 10018800000 2012 (7,200,000 * 3) + (4,000 * 2,000) + (3 * 5,000,000,000) = 15029600000 2013 (6,000,000 * 4) + (3,000 * 2,500) + (4 * 5,000,000,000) = 20031500000

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