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YEAR

P of Hot Dogs

Q of Hot Dogs

P of Hamburgers

Q of Hamburgers
2011 $1 100 $2 50
2012 (Base Year) $2 150 $3 100
2013 $3 200 $4 150

a. Calculate the CPI for 2011 and 2012. Using the CPI, calculate the rate of inflation between 2011 and 2012.

b. Calculate the GDP deflator for 2012 and 2013. Using the GDP deflator, calculate the rate of inflation between 2012 and 2013.

c. Recalculate the inflation rate between 2012 and 2013 using the CPI instead of the GDP deflator. In general, would the two methods yield the same inflation rate? Why?

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019

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Related questions

Table 24-7. The table below applies to an economy with only two goods รขย€ย” hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs.

Year Price of hamburgers Price of hot dogs
2009 $5 $3
2010 5.50 3.30
2011 5.61 3.63

Refer to Table 24-7. Between 2009 and 2011, the cost of living increased by

A. 17 percent.
B. 14 percent.
C. 19 percent.
D. 6 percent.

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

A. the CPI is calculated more often than the GDP deflator is.
B. the CPI is easier to measure.
C. the GDP deflator cannot be used to gauge inflation.
D. the CPI better reflects the goods and services bought by consumers.

A COLA automatically raises the wage when:

A. the consumer price index increases.
B. the producer price index increases.
C. taxes increase.
D. GDP increases.

karaoke machine karaoke machine CDs CDs
year quantity Price Quantity Price
2013 20 $50 100 $15
2014 30 $90 150 $20

a. Calculate CPI and compute the inflation rate of CPI. Use 2013 as the base year, and fix the basket at 1 karaoke machines and 3 CDs.

b. Calculate GDP deflator and compute the inflation rate using GDP deflator. Also use 2013 as the base year.

c. Is the inflation rate in 2014 the same using the two methods? Explain why or why not.

4. Suppose the economy of Stockton produces four goods: strawberries, ice cream, sushi, andcoolers. However, consumers only purchase strawberries, ice cream, and sushi. Coolers are a final good, but are only used by ice cream trucks to store ice cream. The total production of all final goods is given in the table below: Year Strawberries Ice Cream Quantity Price ($ per unit) Quantity Price ($ per unit) 2010 8 $4 10 $2 2011 9 $5 14 $2 2012 10 $6 18 $3 Year Quantity Sushi Price ($ per unit) Coolers Quantity Price ($ per unit) 2010 12 $3 1 $12 2011 12 $3 2 $8 2012 15 $4 8 $2 (a) Using 2010 as the base year, calculate the value of the CPI in each year, and thencalculate the rate of inflation based on the CPI for all years (i.e., inflation rate from 2010 to 2011 and from 2011 to 2012). (b) Keeping in mind that the GDP deflator is a fixed-prices measure (fixed in the base year),calculate nominal GDP and real GDP for each year using 2010 as the base year. Using the expression for the GDP deflator, calculate the value of the GDP deflator in each year, then calculate the rate of inflation based on the GDP deflator for all years (i.e., inflation rate from 2010 to 2011 and from 2011 to 2012). (c) The following table gives the average nominal wage (in thousands) of workers in Stockton. In which year did they have the highest real wage?

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