Question

Consider the following Economy in which only cars and bananas are produced

Year 1

	Quantity	Price
Cars	1000	$100
Bananas	7000	$1

Year 2

	Quantity	Price
Cars	980	$110
Bananas	9000	$0.9

Real GDP Year 1 =   (Using Year 1's prices)

Real GDP Year 2 =  (Using Year 1's prices)

Inflation Rate between Year 2 and Year 1 =    (using Chain-Weighting, your answer has to be a percentage - for example +5.2%. Stop at the first decimal) Chain-Weighting means that you need to calculate the average price level in each year using the quantity of goods produced as weights.

Answer 1

Solution:

Solution:

Real GDP Year 1 = $100($1,000) + $1*($7,000)

                             = $1, 07,000

Real GDP Year 2 = $100*($980) + $0.9*($9000)

                             = $1,06,100