Consider the economy described in Problem 4.

a. Construct real GDP for years 2009 and 2010 by using the average price of each good over the two years.

b. By what percentage does real GDP change from 2009 to 2010?

c. What is the GDP deflator in 2009 and 2010 ? Using the GDP deflator, what is the rate of inflation from 2009 to 2010?

d. Is this an attractive solution to the problems pointed out in Problems 4 and 5 (i.e., two different growth rates and two different inflation rates, depending on which set of prices is used)? (The answer is yes and is the basis for the construction of chained-type deflators. See the appendix to this chapter for more discussion.)

Data from problem 4 An economy produces three goods: cars, computers, and oranges. Quantities and prices per unit for years 2009 and 2010 are as follows:

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Cars Computers Oranges 2009 Quantity Price 10 $2,000 4 $1,000 1,000 $1 2010 Quantity Price 12 6 1,000 $3,000 $500 $1