Question

I don't want explanation , I just want a correct answer, Very quickly.

14- You are given the following information about the economy of Freedonia. The country produces 10 of X with PX=1 and 4 of Y with Py=2 in year 1. In year 2, the country produced 12 of X with PX=.5 and 6 of Y with Py=3. Based on this information answer the following 2 questions. In Freedina, considering year 2 as the base year, the CPI in year 1 is

Select one:

a. 100

b. 80

c. 73

d. 105

e. 110

15- Based on the information about the economy of Freedonia, the GDP deflator for years 1 and 2 is

Select one:

a. 100 and 106

b. 100 and 100

c. 100 and 105

d. 105 and 106

e. 106 and 100

16- In freedonia, real GDP in years 1 and 2 is

Select one:

a. None of the above

b. 17 and 24

c. 18 and 24

d. 24 and 24

e. 24 and 18

Answer 1

Solution:

14. Consumer price index, CPI = value of market basket in current year*100/value of market basket in base year

Thus, in this case, CPI = value of year 2 basket in year 1*100/value of year 2 basket in year 2

CPI = (1*12 + 2*6)*100/(0.5*12 + 3*6)

CPI = 24*100/24 = 100

Thus, the correct option is (A).

15. GDP deflator = nominal GDP*100/real GDP

Nominal GDP = sum(price in an year*quantity in an year)

Real GDP = sum(price in base year*quantity in an year)

With base year as year 2:

GDP deflator in year 1 = (1*10 + 2*4)*100/(0.5*10 + 3*4)

= 18*100/17 = 105.88 or 106

With year 2 as base year, real GDP = nominal GDP, and so GDP deflator in year 2 = 100

Thus, the correct option is (E).

16. Real GDP as already calculated in the above part:

For year 1 = 17

For year 2 = 0.5*12 + 3*6 = 6 + 18 = 24

Thus, the correct option is (B).