Question

Suppose we calculate the percent change in real GDP from year 1 to year 2 using the prices from year 1, and we get 15 percent. When we calculate the percent change in real GDP from year 1 to year 2 using the prices from year 2, we obtain 12 percent. According to the chain weighting method, the growth of real GDP from year 1 to year 2 is roughly: A. 13.5 percent B. 12.75 percent C. 12.5 percent D. 1.5 percent

Answer 1

a) 13.5%

Step-by-step explanation:

A chain weighted inflation method is a method that measures or compares both the change in price and pattern of spending . In this case the chain weighted method will be used to measure price change and real GDP in both year 1 and year 2.

Given:

Number of years, n= 2

Using prices from year 1, % change in real GDP = 15%.

Using prices from year 2, % change in real GDP = 12%.

According to the chain weighted method, the growth of real GDP from year 1 to year 2 will be:

(15%/2) + (12%/2)

= 7.5% + 6%

= 13.5%

The growth of real GDP from year1 to year2 is 13.5%