Question

In 2015, you spent $35 on jeans by buying 3 pairs and bought T-shirts that cost $16 at each of the 7 concerts that you “attended”. Food cost you $80 per week and because you only lived at home for six weeks during the year you had to buy food for 46 weeks. Finally, each of the 13 pizza “dinners” you were part of cost $8.In 2016, you spent $36 on jeans and bought 4 pairs, you bought 8 concert T-shirts at $15 each. Food cost you $85 per week but you lived at home for seventeen weeks during the year (so “had” to buy for 35 weeks). Finally, each of the 13 pizza “dinners” you were part of this year cost $10.

a. What is nominal GDP (aggregate output) for 2016?
b. What is the adjusted-for-inflation product level for 2016? (i.e. real GDP)
c. Calculate the implicit price (GDP) deflator for 2016.
d. Calculate the CPI for 2016.
e. Calculate the inflation rate for 2016.

Thank you, have a wonderful weekend

Answer 1

a. nominal GDP = (36*4)+(15*8)+(85*35)+(10*13)

=144+120+2975+130

=3369

b. real gdp= (35*4)+(16*8)+(80*35)+(8*13)

=140+128+2800+104

=3172.

NOTE: real gdp is calculated on the basis of price of base year and quantity of current year.

c. GDP deflator= (nominal GDP/ Real GDP)*100

=(3369/3172)*100

=106.21

d. cpi=( price of the basket of goods and services/ price of the basket in base year) *100

=((36*4)+(15*8)+(85*35)+(10*13)/(35*3)+(16*7)+(80*46)+(13*8))*100

=(3369/4001)*100

= 84.20

NOTE: 2015 is taken as base year.

e. Inflation=(( cpi year 2-cpi year 1)/cpi year 1)*100

=((84.20-100)/100)*100

=-15.20

NOTE: cpi for base year always equals to 100