2. GDP and Inflation Rate (15 points) Suppose an economy produces only chocolates and watches. Below is a table with recent information on production and prices. The base year is 2018. Watches Year 2017 2018 2019 2020 Price of A Box of Boxes of Chocolates Chocolates $4 100 90 100 $6 80 Price of Watches Quantity of $50 10 $50 15 $60 15 $65 12 a) (2 points) Calculate the nominal GDP and real GDP for 2017-2020. Calculate the nominal GDP growth rate and real GDP growth rate for 2018 - 2020. b) (2 points) Calculate the GDP deflator for 2017 2020 and inflation rate for 2018 2020. c) (2 points) Suppose now the base year is 2017. Calculate the real GDP growth rate and the inflation rate for 2018 - 2020. Compare to a) and b) and explain why these measures depend on the choice of base year. d) (2 points) Suppose that there are 5 boxes of chocolates and 2 watches in consumers" basket. Calculate the CPI for 2017-2020 and the inflation rate for 2018-2020 (using year 2018 as the base year). Briefly explain why the inflation rate differs the inflation rate from part b). e) Now you are asked to retrieve US data from FRED (https://fred.stlouisfed.org). Once you have retrieved the data, a spreadsheet program will serve our purpose. The base year is 2012. (1) (2 points) Download data of US nominal GDP and real GDP for each year over the period of 2010-2020. Calculate nominal GDP growth rate and real GDP growth rate for years 2010 - 2020. What is the 10-year growth rate of real GDP between 2010 and 2020? (i) (3 points) Compute the GDP deflators for years 2010 - 2020 and inflation rate (i.e., year-to- year growth rate of GDP deflators) for years 2010-2020. Plot the series of inflation rate and real GDP growth rate in the same graph (either line or scattered plot is sufficient). Please comment on interesting pattern(s) you observe from the graph (i.c., the lowest growth rate and highest growth rate and how the two series are related). (iii) (2 points) Download data of US CPI for all urban consumers: all items in U.S. city average for 2010-2020. Compute the inflation rate (.e., year-to-year growth rate of CPT) for years 2010-2020. Plot the series of inflation rate in part b) and the inflation rate in parte) and comment on the pattern you observe from the graph. 3