Answered: a. Using 2000 as the base year, compute…

a. Using 2000 as the base year, compute the following statistics for each year: nominal GDP, real GDP, the implicit price deflator for GDP, and a fixed-weight price index such as the CPI.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter1: Welcome To Economics!

Section: Chapter Questions

Problem 6SCQ: Suppose we extend the circular flow model to add imports and exports. Copy the circular flow diagram...

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Concept explainers

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.

Question

Answer #6

d. Def
f. Imports
поп
Do you see any stable relationships in the data?
Do you see any trends? (Hint: You can find the
data at www.bea.gov, which is the Web site of
the Bureau of Economic Analysis.)
com
does
year
e. Sup
ing
6. Consider an economy that produces and con-
sumes bread and automobiles. In the following
table are data for two different years.
the
Con
part
tell
2000
2010
Good
Quantity Price
Quantity Price
inde
Automobiles
100
$50,000
120
$60,000
Bread
500,000 $10
400,000
$20
a. Using 2000 as the base year, compute the
following statistics for each year: nominal
GDP, real GDP, the implicit price deflator for
GDP, and a fixed-weight price index such as
the CPI.
b. How much did prices rise between 2000 and
2010? Compare the answers given by the
Laspeyres and Paasche price indexes. Explain
the difference.
c. Suppose you are a senator writing a bill to
index Social Security and federal pensions.
That is, your bill will adjust these benefits to
offset changes in the cost of living. Will you
use the GDP deflator or the CPI? Why?
7. Abby consumes only apples. In year 1, red apples
cost $1 each,green apples cost $2 each, and
Abby buys 10 red apples. In year 2, red apples
f. N

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