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Rec03_sol

# 60500160 35360 2009 350120060700180 42500 3501200

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Unformatted text preview: ach year, using 2009 as the base year: Nominal GDP Real GDP (Use 2009 Prices) 2008 (\$500)*(100) + (\$0.80)*(500) + (\$0.50)*(60) = \$50,430 (\$350)*(100) + (\$0.60)*(500) + (\$1)*(60) = \$35,360 2009 (\$350)*(120) + (\$0.60)*(700) + (\$1)*(80) = \$42,500 (\$350)*(120) + (\$0.60)*(700) + (\$1)*(80) = \$42,500 2010 (\$550)*(145) + (\$1)*(1,000) + (\$3)*(100) = \$81,050 (\$350)*(145) + (\$0.60)*(1,000) + (\$1)*(100) = \$51,450 Next, calculate the GDP Deflator for each year using: GDP Deflator = (Nominal GDP / Real GDP)*100 GDP Deflator 2008 (\$50,430 / \$35,360) * 100 = 142.6 2009 (\$42,500 / \$42,500) * 100 = 100 2010 (\$81,050 / \$51,450) * 100 = 157.5 Finally, calculate inflation for each year using the values for GDP Deflator in the growth formula: [(new – old) / old] * 100% Inflation for 2008 cannot be calculated, and any answer similar to that for the year 2008 is acceptable. However, INFLATION IS NOT 0% IN 2008. Inflation Rate 2008 N/A, Not available, Cannot be calculated, etc. 2009 [(100 – 142.6) / 142.6] * 100% = ‐ 29.9% 2010 [(157.5 – 100) / 100] * 100% = 57.5% b) Because industrial tractors are not consumed by the typical customer, it will not be included in CPI calculations. First, calculate CPI for each year, using 2009 as the base year: Cost of Basket CPI 2008 (2*\$0.80) + (2*\$0.50) + (2*\$0.50) = (\$3.60/\$4.40) * 100 = 81.8 \$3.60 2009 (2*\$0.60) + (2*\$0.60) + (2*\$1....
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