Can someone please help me solve this exercise ? More specifically, I don't understand part C . How do we calculate a chained-type deflator ?
Thanks
. Exercise 1 An economy produces 3 goods: cars, computers and oranges. Quantities and prices per unit for the years 2013 and 2014 are as follows: 2013 2014 Quantity Price Quantity Price Cars 10 $2000 12 $3000 Computers 4 $1000 6 $500 Oranges 1000 $1 1000 $1 A. Questions about nominal GDP and real GDP and the growth rate: a) What is nominal GDP in 2013 and in 2014? By what percentage does nominal GDP change from 2013 to 2014? b) Using the prices for 2013 as the set of common prices, what is real GDP in 2013 and in 2014? By what percentage does real GDP change from 2013 to 2014? c) Using the prices for 2014 as the set of common prices, what is the real GDP in 2013 and 2014? By what percentage does real GDP change from 2013 to 2014? d) Why are the two output growth rates constructed in (b) and (c) different? Which one is correct? Explain your answer. B. Questions about GDP deflator the growth rate: a) Use the prices for 2013 as the set of common prices to compute real GDP in 2013 and 2014. Compute the GDP deflator for 2013 and for 2014 and compute the rate of inflation from 2013 to 2014. b) Use the prices for 2014 as the set of common prices to compute real GDP in 2013 and 2014. Compute the GDP deflator for 2013 and for 2014 and compute the rate of inflation from 2013 to 2014. c) Why are the two rates of deflation different? Which one is correct? Explain your answer. C. Questions chained-type deflator: a) Construct real GDP for the years 2013 and 2014 by using the average price of each good over the two years. b) By what percentage does real GDP change from 2013 to 2014? c) What is the GDP deflator in 2013 and 2014? Using the GDP deflator, what is the rate of inflation from 2013 to 2014? d) Is this an attractive solution to the problems pointed out in questions A and B (i.e. two different growth rates and prices is used)? (See the appendix to this chapter for more discussion on the chained-type deflator.)