Question
Question 2 (40 points): Suppose the economy has the following consumption pattern Sandwich Hotdog Cell phone Super car 2019 Price $7 $3 $200 $5,000 Quantity
Question 2 (40 points): Suppose the economy has the following consumption pattern
| Sandwich | Hotdog | Cell phone | Super car |
2019 |
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Price | $7 | $3 | $200 | $5,000 |
Quantity | 500 | 400 | 100 | 3 |
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2020 |
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Price | $10 | $5 | $250 | $7,000 |
Quantity | 200 | 400 | 100 | 2 |
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2021 |
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|
|
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Price | $5 | $2 | $200 | $6,000 |
Quantity | 500 | 600 | 200 | 4 |
Calculate the nominal GDPs of this economy. (6 points)
Calculate the real GDP of this economy using 2020 as the base year. (6 points)
Calculate the GDP growth in 2021 for nominal GDP and real GDP. Explain why they are different. (8 points)
Calculate the GDP deflators using 2020 as the base year. (6 points)
Now suppose that the government estimates the average consumption of each good to be as below. Calculate the CPI using 2020 as the base year. (6 points)
| Sandwich | Hotdog | Cell phone | Super car |
Hypothetical |
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|
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Quantity | 300 | 500 | 150 | 3 |
Calculate the inflation rates using the GDP deflator (part c) and CPI (part d) in 2021 (relative to 2020). (4 points)
Suppose that you earned $100,000 in 2020 and you want to know how much that income would be worth in 2021 values. Calculate the 2021 value of your 2020 income. Should you ask for a raise? (4 points)
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