Home » Suppose that there are only 2 goods in the economy (denoted by A and B). We have yearly data on prices (p) and quantities produced (q) for each good…

# Suppose that there are only 2 goods in the economy (denoted by A and B). We have yearly data on prices (p) and quantities produced (q) for each good…

Suppose that there are only 2 goods in the economy (denoted by A and B). We have yearly data on prices (p) and quantities produced (q) for each good for the period 2000-2002.A.      Compute the nominal GDP for each year

B.      Compute, for each year in the sample, the real GDP with base-year 2000.

C.      Compute the GDP deflator for each year in the sample, using 2001 as base year. Compute the corresponding inflation rate for each year.

D.      Suppose that the basket of goods used by the Government to compute the CPI consists of 1 unit of good A and 4 units of good B. Using 2001 as the base-year, compute the CPI and also the CPI based inflation rate for each year. How the numbers do for CPI based inflation compare with the numbers for GDP deflator based inflation obtained above? Do you get more or less deflation between 2001 and 2002? Explain briefly.

E.       Compute the growth rates of the real GDP for 2000-2001 and 2001-2002.

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