Problem set 5

Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6. Year 1 is the base year. What is real GDP for year 1, year 2, year 3?

$12, $16, $20

Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6. Year 1 is the base year. What is nominal GDP for year 1, year 2, year 3?

$12, $20, $30

If the CPI is 200 in year 1980 and 300 today, then $600 in 1980 has the same purchasing power as ________ today.

$900

Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6. Year 1 is the base year. What is the GDP Deflator for year 1, year 2, year 3?

100, 125, 150

A small nation of 10 people produce and consume only cookies and milk. Assume below is data showing the actual prices and quantities produced and sold in the following years. Calculate the GDP deflator for the year 2022. Assume 2021 is the base year. The value of the GDP deflator in 2022 is ______, and the annual rate of inflation (annual percentage increase in GDP deflator) in 2022 according to the GDP deflator is _______.

134.69, 34.69%

A small nation of 10 people produce and consume only cookies and milk. Assuming that the average market basket of goods contains 1 box of cookies and 3 containers of milk, calculate the CPI for the year 2022. Assume 2021 is the base year. The value of the CPI in 2022 is ______, and the annual rate of inflation (annual percentage increase in CPI) in 2022 is _______.

137.14, 37.14%

If the price of a hotdog is $2 and the price of a hamburger is $4, then 30 hotdogs contribute as much to GDP as ______ hamburgers.

15

The CPI measures approximately the same economic phenomenon as

GDP deflator

Which of the following does NOT add to U.S. GDP?

The federal government sends a Social Security check to your grandmother

Which do you think has a greater effect on the CPI: a 10% increase in the price of chicken or a 10% increase in the price of caviar? Why?

a 10% increase in the price of chicken since chicken would be a greater component of the average consumer's market basket

The Consumer Price Index is defined as

a measure of the overall cost of the goods and services bought by a typical consumer

Explain why an economy's income must equal its expenditure.

because a dollar spent is a dollar earned

An American buys a pair of shoes made in Italy. How do the U.S. national income accounts treat the transaction?

net exports fall, while GDP is unchanged

Because consumers can sometimes substitute cheaper goods for those that have risen in price,

the CPI overstates inflation

If the price of imported French wine rises, is the CPI or GDP deflator affected more? Why?

the CPI since it would not be a part of the GDP deflator- imported goods are not included in GDP