Question

What is the difference between CPI market basket and nominal GDP? I am asking because when I calculate both I always use the same formula for both

Answer 1

Nominal GDP: the value of final goods and services at current prices ( Price in current year x quantity in current year).

CPI formuls ( Base year basket quantity times current year prices)/ Base year basket quantites times base year prices) x 100

Example:

Good A Good B   

Price $ Quantity Price $ Quantity

  

Base year 10 10 11 12

Year 1 12 12 15 15

Nominal GDP for base year = ($10 x 10) + ( $11 x 12)= $100 + $132=$232.

Nominal GDP for year 1= ( $12 x 12) + ($15 x 15) = $144 + $225= $369.

CPI

( Base year basket quantity times current year prices)/ Base year basket quantites times base year prices) x 100

Base year basket quantity times current year prices=

Good A= ( 10 x $ 12) = $120.

Good B= (12 x $15) = $ 180

= $120 + $180 = $300.

Base year basket quantites times base year prices)

= (10 x $ 10) + (12 x $11)= $100 + $ 132= $232

CPI= (300/232) x100 = 129.31.