Suppose an economy produces and consumes only two goods: houses and entertainment.The following table shows quantities consumed and prices for three years: Year 0 (the base year),Year 1,and Year 2.

a)Using the base year basket,compute the CPI for Year 1 and Year 2.
b)Compute the GDP deflator for Year 1 and Year 2.
c)Compute inflation rates based on CPI and the GDP deflators.

Question

Suppose an economy produces and consumes only two goods: houses and entertainment.The following table shows quantities consumed and prices for three years: Year 0 (the base year),Year 1,and Year 2.
  
a)Using the base year basket,compute the CPI for Year 1 and Year 2.
b)Compute the GDP deflator for Year 1 and Year 2.
c)Compute inflation rates based on CPI and the GDP deflators.

Quizplus · Accepted Answer

The Answer of Suppose an economy produces and consumes only two goods: houses and entertainment.The following table shows quantities consumed and prices for three years: Year 0 (the base year),Year 1,and Year 2.
  
a)Using the base year basket,compute the CPI for Year 1 and Year 2.
b)Compute the GDP deflator for Year 1 and Year 2.
c)Compute inflation rates based on CPI and the GDP deflators.

Suppose an Economy Produces and Consumes Only Two Goods: Houses