ECON 1BB3 Chapter Notes - Chapter 10: Gdp Deflator, Internal Fixation

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ECON 1BB3 Full Course Notes

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Gdp increases if prices increases or if output increases. Real gdp: gdp measured in some base year prices. Gdp deflator: a measure of the price level. Gdp deflator is an index, there is no units attached (dollars/ percent); it is a measure of the price level. Inflation rate: the rate of change from one year to the next = (final value-initial value/initial value) x. Consumer price index (cpi): measures overall costs of goods for a typical urban household. Senior citizens and rural households may not reflect the cpi. It is a measure of the price level. Calculating inflation using cpi: fix the basket of the goods. Find the prices of those goods: cpi= (cost in current year/cost in base year)x100.

Related Questions

Real versus nominal GDP

Consider a simple economy that produces two goods: apples and oranges. The following table shows the prices and quantities for the goods over a three-year period.

Year	Apples		Oranges
	Price	Quantity	Price	Quantity
	(Dollars per apple)	(Number of apples)	(Dollars per orange)	(Number of oranges)
2010	1	120	1	195
2011	2	130	4	195
2012	4	130	4	145

A. Use the information from the previous table to fill in the following table.

Year	Nominal GDP	Real GDP	GDP Deflator
Year	(Dollars)	(Base year 2010, Dollars)	GDP Deflator
2010
2011
2012

B. From 2011 to 2012, change in nominal GDP is __________, and real GDP is ________.

C. The inflation rate in 2012 was ____________.

D. Why is real GDP a more accurate measure of an economy's production than nominal GDP?

a. Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

b. Real GDP includes the value of exports, but nominal GDP does not.

c. Real GDP is not influenced by price changes, but nominal GDP is.

lilacpig169

QUESTION 31

Suppose that twenty-five years ago a country had nominal GDP of $1,800, a GDP deflator of 150, and a population of 100. Today it has nominal GDP of $2,800, a GDP deflator of 270, and population of 180. What happened to the real GDP per person?

It more than doubled

It increased, but it less than doubled

It was unchanged

It decreased

1 points

QUESTION 32

During a presidential campaign, the incumbent argues that he should be reelected because nominal GDP grew by 12 percent during his 4-year term in office. You know that population grew by 4 percent over the period and that the GDP deflator increased by 6 percent during the past 4 years. You should conclude that real GDP per person

grew by 2%

grew by 6%

grew by 8%

grew by 12%

1 points

QUESTION 33

Suppose todayâs CPI is 134.85, and suppose one must spend $986 today to purchase the same basket of goods and services that could be bought for $680 in 1989. Then the CPI in 1989 was

24.27

60.68

93.00

195.53

1 points

QUESTION 34

If your firmâs production function has a decreasing returns to scale and you increase all your inputs by 60%, then your firm's output will

not change

increase, but by less than 60%

increase by 60%

increase by more than 60%

QUESTION 36

Suppose country's nominal GDP tripled, population grew by 40%, and prices doubles over the last 25 year. What happened to nominal GDP per person?

increased by 114%

increased by 93%

increased by 87%

decreased by 69%

1 points

QUESTION 37

A barber shop produces 288 haircuts a day. Each barber in the shop works 8 hours per day and produces the same number of haircuts per hour. If the shopâs productivity is 3 haircuts per hour of labor, then how many barbers does the shop employ?

None of the above is correct

1 points

QUESTION 38

If the nominal interest rate is 11% and the rate of inflation is 6%, then the real interest rate is

-5%

1.67%

11%

1 points

QUESTION 39

Last year real GDP in Greatland was 651 billion and the population was 2.4 million. The year before, real GDP was 460 billion and the population was 1.9 million. What was the growth rate of real GDP per person during the year?

12 percent

10 percent

4 percent

2 percent

1 points

QUESTION 40

If real GDP increases by 40% and the GDP deflator decreases by 10%, then nominal GDP increases by

40%

30%

26%

-10%

1. Consider an economy that produces oranges and boomerangs. The prices and quantities of these goods in two different years are reported in the table below. Fill in the missing entries

	2016	2017	% change of 2016-2017
quantity of oranges	100	105	?
quantity of boomerangs	20	22	?
price of oranges (dollars)	1	1.10	?
price of bommerangs (dollars	3	3.10	?
Nominal GDP	?	?	?
Real GDP in 2016 prices	?	?	?
Real GDP in 2017 prices	?	?	?
Real GDP in chained prices	?	?	?

2. Consider the economy from the above problem 1.^ Calculate the inflation rate for the 2016â2017 period using the GDP
deflator based on the Laspeyres, Paasche, and chain-weighted indexes of GDP.

3. Indian GDP in 2010 was 78.9 trillion rupees, while U.S. GDP was $14.5 trillion. The exchange rate in 2010 was 45.7 rupees per dollar. India turns out to have lower prices than the United States (this is true more generally for poor countries): the price level in India (converted to dollars) divided by the price level in the United States was 0.368 in 2010.
(a) What is the ratio of Indian GDP to U.S. GDP if we donât take into account the differences in relative prices and simply use the exchange rate to make the conversion?
(b) What is the ratio of real GDP in India to real GDP in the United States in common prices?
(c) Why are these two numbers different?

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ECON 1BB3 Chapter Notes - Chapter 10: Gdp Deflator, Internal Fixation

ECON 1BB3 Full Course Notes

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