Question

Consider an economy that produces and consumes hot dogs and hamburgers. In the following table are data for two different years. 2010 2015 Good quantity price quantity price Hot dogs 200 $2 250 $4 Hamburgers 200 $3 500 $4 Using 2010 as the base year, compute the following statistics for each year: nominal GDP, real GDP, the implicit price deflator for GDP, and a fixed - weight price index such as the CPI.

Answer 1

To compute the statistics for each year in the given economy, you need to use the formulas for nominal GDP, real GDP, the implicit price deflator for GDP, and a fixed-weight price index.

Step-by-step explanation:

To compute the statistics for each year, you need to use the formula:
Nominal GDP = Quantity * Price
Real GDP = Quantity * Base Year Price
Implicit Price Deflator = (Nominal GDP / Real GDP) * 100
Fixed-Weight Price Index = (Nominal GDP / Base Year Nominal GDP) * 100

For example, in 2010:
Nominal GDP = (200 * $2) + (200 * $3) = $400 + $600 = $1,000
Real GDP = (200 * $2) + (200 * $3) = $400 + $600 = $1,000
Implicit Price Deflator = ($1,000 / $1,000) * 100 = 100
Fixed-Weight Price Index = ($1,000 / $1,000) * 100 = 100

Answer 2

To answer the student's question, nominal and real GDPs are calculated by multiplying the quantities of goods with their respective prices, nominal for the current year and base year prices for real GDP. The GDP deflator is then obtained by dividing the nominal GDP by real GDP and multiplying by 100. A fixed-weight price index like the CPI can be computed by comparing the cost of the same basket of goods across different years.

Step-by-step explanation:

The student's question pertains to calculating nominal GDP, real GDP, the GDP deflator, and a fixed-weight price index like the CPI for an economy that produces hot dogs and hamburgers in different years using 2010 as the base year. To compute these, we need to recall a few definitions:

• Nominal GDP is the current year's output at current year prices.
• Real GDP is the current year's output at base year prices.
• The GDP deflator reflects the change in prices and is calculated as (Nominal GDP/Real GDP) x 100.
• Consumer Price Index (CPI) measures the average change over time in the prices paid by consumers for a market basket of goods and services.

To calculate each statistic, follow these steps:

1. Multiply quantities by their respective prices for each year to get nominal GDP.
2. Calculate real GDP by multiplying the quantities for each year by the base year prices.
3. Compute the GDP deflator using the formula provided.
4. For the CPI or any fixed-weight price index, use the formula for price indexes, typically involving a basket of goods priced at each year's prices compared to a base year's prices.