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Suppose an economy has two years' worth of data, years 1 and 2. Suppose there are also two goods, bread and corn. Suppose in year

Suppose an economy has two years' worth of data, years 1 and 2. Suppose there are also two goods, bread and corn. Suppose in year one

fifty units of corn are sold at a price of 1 $ and 20 units of bread are

sold at a price of 2 $. Suppose in year two, 60 units of corn are sold

at a price of 1.5 $ and 80 units of bread are sold at a price of 2.05

$. Compute nominal GDP in both periods. Compute real GDP under

both definitions of a base year. Compute also a chain weighted real

GDP series. For all three measures, compute the GDP deflator. In

addition, compute a CPI's for each base year assuming total consumption in the base year forms the basket of goods for measurement. What

2

are the implications for these measures for the amount of inflation in

this economy. [Note, you should have five candidate measures]. What

about the amount of economic growth? Suppose that corn in year 2

is twice as valuable as corn in year 1 to consumers in terms of their

enjoyment from its consumption (or in terms of its nutritional value).

How would your above calculations change numerically if we want real

GDP growth to include improvements in quality? [Warning: Chain

weighting is done over different base year sequences of GDP values not

over different commodities.]

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