An economy produces only three types of goods: apples, oranges, and bananas.

Production units and prices per unit for years 2016 and 2017 are as follows:

2016 2017

Quantity Price Quantity Price

Apples 3000 2 4000 3

Oranges 8000 4 32000 5

Bananas 6000 3 14000 2

(a) What is nominal GDP in 2016 and in 2017?

(b) Using 2016 as the base year, what is the GDP deflator for 2016 and

2017? What is the rate of inflation over this period?

(c) Using 2017 as the base year, what is the GDP deflator for 2016 and

2017? What is the rate of inflation over this period?

(d) Explain why the choice of base year changes the rate of inflation.

(e) CPI index is also used to measure inflation rate in the economy.

What is the difference between CPI index and GDP deflator?