Exhibit: Quantity Consumed and Price of Good $$\begin{array} { l c c }
& \text { Base Year } & \text { Later Year } \
\text { Price of good A } & 100 & 200 \
\text { Quantity of good A } & 100 & 200 \
\text { Price of good B } & 100 & 100 \
\text { Quantity of good B } & 100 & 100
\end{array}$$ In the exhibit, the citizens of country XYZ come to desire more of good A. As a result, the quantity and price of the good both rise. a. Compute nominal GDP in the base year and later year.
b. Compute real GDP in the base and later years (in base-year prices).
c. Compute the GDP deflator in the later year, using your answers to parts a and $b$.
d. Compute a fixed-weight price index for the later year, using the base-year quantities as weights.
e. Which price index rises faster, the GDP deflator (Paasche) index or the fixed-weight index (Laspeyres) index?

Question

Exhibit: Quantity Consumed and Price of Good $$\begin{array} { l c c } 
& \text { Base Year } & \text { Later Year } \
\text { Price of good A } & 100 & 200 \
\text { Quantity of good A } & 100 & 200 \
\text { Price of good B } & 100 & 100 \
\text { Quantity of good B } & 100 & 100
\end{array}$$ In the exhibit, the citizens of country XYZ come to desire more of good A. As a result, the quantity and price of the good both rise. a. Compute nominal GDP in the base year and later year.
b. Compute real GDP in the base and later years (in base-year prices).
c. Compute the GDP deflator in the later year, using your answers to parts a and $b$.
d. Compute a fixed-weight price index for the later year, using the base-year quantities as weights.
e. Which price index rises faster, the GDP deflator (Paasche) index or the fixed-weight index (Laspeyres) index?

Quizplus · Accepted Answer

The Answer of Exhibit: Quantity Consumed and Price of Good $$\begin{array} { l c c } 
& \text { Base Year } & \text { Later Year } \
\text { Price of good A } & 100 & 200 \
\text { Quantity of good A } & 100 & 200 \
\text { Price of good B } & 100 & 100 \
\text { Quantity of good B } & 100 & 100
\end{array}$$ In the exhibit, the citizens of country XYZ come to desire more of good A. As a result, the quantity and price of the good both rise. a. Compute nominal GDP in the base year and later year.
b. Compute real GDP in the base and later years (in base-year prices).
c. Compute the GDP deflator in the later year, using your answers to parts a and $b$.
d. Compute a fixed-weight price index for the later year, using the base-year quantities as weights.
e. Which price index rises faster, the GDP deflator (Paasche) index or the fixed-weight index (Laspeyres) index?

Exhibit: Quantity Consumed and Price of Good In the Exhibit, the Citizens of Country XYZ Come to c