Consider the economy described in Problem 4.

a. Use the prices for 2012 as the set of common prices to compute real GDP in 2012 and in 2013. Compute the GDP deflator for 2012 and for 2013, and compute the rate of inflation from 2012 to 2013.

b. Use the prices for 2013 as the set of common prices to compute real GDP in 2012 and in 2013. Compute the GDP deflator for 2012 and for 2013 and compute the rate of inflation from 2012 to 2013.

c. Why are the two rates of inflation different? Which one is correct? Explain your answer.

Data from Problem 4

An economy produces three goods: cars, computers, and oranges.

Quantities and prices per unit for years 2012 and 2013 are as follows:

a. What is nominal GDP in 2012 and in 2013? By what percentage does nominal GDP change from 2012 to 2013?

b. Using the prices for 2012 as the set of common prices, what is real GDP in 2012 and in 2013? By what percentage does real GDP change from 2012 to 2013?

c. Using the prices for 2013 as the set of common prices, what is real GDP in 2012 and in 2013? By what percentage does real GDP change from 2012 to 2013?

d. Why are the two output growth rates constructed in parts b and c different? Which one is correct? Explain your answer.

Transcribed Image Text:

2012 2013 Quantity Price Quantity Price Cars 10 $2000 12 $3000 Computers 4 $1000 6 $500 Oranges 1,000 $1 1000 $1