Consider an economy that produces and consumes bread and automobiles. In the following table are data for two different years.Year20002010Price of an automobile$40,000$50,000Price of a loaf bread$20$30Number of auto-mobiles produced100 cars120 carsNumber of loaves of bread produced600,000 loaves500,000 loaves Using the year 2000, 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 CPI.How much have prices risen between year 2000 and year 2010? Compare answers given by Laspeyres and Passche price indices. Suppose you are a senior public servant writing a bill to index Social Security and 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? Explain emphasis on questions 2 and 3 .

a) Nominal GDP:- Nominal GDP2000=PA×QA+PB×QBWhere;PA= Price of automobile QA=Quantity of…

Answered: Consider an economy that produces and…

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter5: Measuring A Nation's Income

Section: Chapter Questions

Problem 6PA

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Consider an economy that produces and consumes bread and automobiles. In the following table are data for two different years.

Year	2000	2010
Price of an automobile	$40,000	$50,000
Price of a loaf bread	$20	$30
Number of auto-mobiles produced	100 cars	120 cars
Number of loaves of bread produced	600,000 loaves	500,000 loaves

Using the year 2000, 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 CPI.
How much have prices risen between year 2000 and year 2010? Compare answers given by Laspeyres and Passche price indices.
Suppose you are a senior public servant writing a bill to index Social Security and 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? Explain

emphasis on questions 2 and 3 .

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