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Here is a table showing the outputs of Atlantis in recent years: The regular consumer in Atlantis...

Question:

Here is a table showing the outputs of Atlantis in recent years:

Year Banana Unit Price Boat Unit Price Aircraft Unit Price
2010 5,600,000 1 3,500 1,000 1 5,000,000,000
2011 6,400,000 2 4,000 1,500 2 5,000,000,000
2012 7,200,000 3 4,000 2,000 3 5,000,000,000
2013 6,000,000 4 3,000 2,500 4 5,000,000,000

The regular consumer in Atlantis consumes 500 bananas and 1 boat per year, which is the bundle for CPI calculation.

A) Taking 2010 as the base year, calculate the GDP deflator measured inflation for the year 2011, 2012 and 2013.

B) Taking 2013 as the base year, calculate the GDP deflator measured inflation for the year 2011, 2012 and 2013.

C) Taking 2010 as the base year, calculate the CPI measured inflation for the year 2011, 2012 and 2013.

D) Taking 2013 as the base year, calculate the CPI measured inflation for the year 2011, 2012 and 2013.

Gross Domestic Product (GDP)

Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.

Answer and Explanation:

(1) Year 2010:

Nominal GDP:

Bananas $1x5, 600,000 + Boat $1,000 x 3,500 + Aircraft $5,000,000,000 x 1

Nominal GDP = $5,009,100,000.

The real GDP for the year 2010 is the same as nominal GDP.

Year 2011: (2010 base yer)

Nominal GDP: $2x 6,400,000 + $1,500x4,000 + 5,000,000,000x 2

Nominal GDP = $12,800,000 + $6,000,000 + $10,000,000,000

Nominal GDP for 2011 = $10,018,800,000

Real GDP at 2010 prices: $1x6,400,000 + $1,000x4,000 + $5,000,000,000x2

Real GDP = $6,400,000 + 4,000,000 + $5,000,000,000

Real GDP = $5,010,400,000

GDP deflator for 2011 = Nominal GDP / Real GDP x 100

GDP deflator = 199.96

Year 2012:

Nominal GDP: $3x7,200,000 + $2,000x4000 + $5.000,000,000x3

Nominal GDP = $21,600,000 + $8,000,000 + $15,000,000,000

Nominal GDP = $15,029,600,000

Real GDP: $1x7,200,000 + $1,000x4,000 + $5,000,000,000x3

Real GDP = $7,200.000 + 4,000,000 + 15,000,000,000

Real GDP= $15,011,200,000

GDP deflator for 2012 = $15,029,600,000 / 15,011,200,000 x 100

GDP deflator = 100.12

Year 2013:

Nominal GDP = $4x6,000,000 + $2,500x3,000 + $5.000,000,000x4

Nominal GDP = $24,000,000 + $7,500,000 + $20,000,000,000

Nominal GDP = $20,031,500,000

Real GDP = $1x6,000,000 + $1,000x3,000 + $5,000,000,000x4

Real GDP = $6,000,000 + $3,000,000 + $20,000,000,000

Real GDP = $20,009,000,000

GDP deflator for 2013 = $20,031,500,000 / 20,009,000,000 x 100

GDP deflator for 2013 = 100.11.

(2) Taking 2013 as base year:

Nominal GDP for 2011 = $10,018,800,000

Real GDP = $4x6,400,000 + $2,500x4,000 + $5,000,000,000x2

Real GDP = $25,600,000 + $10,000,000 + $10,000,000,000

Real GDP = $10,035,600,000

GDP deflator for 2011 = 10,018,800,000 / 10,035,600,000 x 100

GDP deflator for 2011 = 99.83.

Nominal GDP for 2012 = $15,029,600,000

Real GDP = $4x7,200,000 + $2,500x4,000 + $5,000,000,000x3

Real GDP = $38,800,000 + $10,000,000 + $15,000,000,000

Real GDP = $15,048,800,000

GDP deflator for 2012 = $15,029,600,000 / $15,048,800,000 x 100

GDP deflator for 2012 = 99.87.

Nominal GDP for 2013 = $20,031,500,000

Since the base year is the same, the GDP deflator is 100.

(3) CPI for 2011, 2012, and 2013 taking 2010 as base year:

CPI for the year 2011 = $10,018,800,000 / $5,009,100,000 x 100

CPI for year 2011 = 200.01

CPI for the year 2012 = $15,029,600,000 / $5,009,100,000 x 100

CPI for the year 2012 = 300.04

CPI for the year 2013 = $20,031,500,000 / $5,009,100,000 x 100

CPI for the year 2013 = 399.90.

(4) Taking 2013 as base year:

CPI for the year 2011 = $5,009,100,000 / $20,031,500,000 x 100

CPI for the year 2011 = 25.00

CPI for the year 2012 = $10,018,800,000 / $20,031,500,000 x 100

CPI for the year 2012 = 50.01

CPI for the year 2013 is 100, since it is chosen as the base year.


Learn more about this topic:

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Overview of the Gross Domestic Product

from CLEP Social Sciences and History: Study Guide & Test Prep

Chapter 59 / Lesson 2
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