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Problem Set 1

# Problem Set 1 - Economics 303 Problem Set 1 Data Due...

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Economics 303: Problem Set 1 – Data Due: Thursday, February 17 (in class). Problems from Williamson (4th edition), chapter 2: 5. Assume an economy in which only broccoli and cauliﬂower are produced. In year 1, 500 million pounds of broccoli are produced and consumed and its price is \$0.50 per pound, while 300 million pounds of cauliﬂower are produced and consumed and its price is \$0.80 per pound. In year 2, 400 million pounds of broccoli are produced and consumed and its price is \$0.60 per pound, while 350 million pounds of cauliﬂower are produced and consumed and its price is \$0.85 per pound. (a) Using year 1 as the base year, calculate the GDP price deﬂator in years 1 and 2, and calculate the rate of inﬂation between years 1 and 2 from the GDP price deﬂator. (b) Using year 1 as the base year, calculate the CPI in years 1 and 2, and calculate the CPI rate of inﬂation. Explain any diﬀerences in your results between parts (a) and (b). N.B. Let all production in year 1 be the market basket.

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Problem Set 1 - Economics 303 Problem Set 1 Data Due...

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