Rec03_sol

# Howeverinflationisnot0in2008 inflationrate 2008

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Unformatted text preview: 00) = (\$4.40/\$4.40) * 100 = 100 \$4.40 2010 (2*\$1.00) + (2*\$0.70) + (2*\$3.00) = (\$3.60/\$4.40) * 100 = 213.6 Page 2 of 7 \$9.40 Finally, calculate inflation for each year using the values for CPI 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 – 81.8) / 81.8] * 100% = 22.2% 2010 [(213.6 – 100) / 100] * 100% = 113.6% c) Nominal GDP decreased between 2008 and 2009, but real GDP increased. Because production increased for all products produced in the country, real GDP, which reflects production increases only, increased. Despite the production increases, prices decreased between 2008 and 2009. These decreases were enough to outweigh the increases in production, so nominal GDP decreased. d) The CPI will decrease, but this will not affect the GDP Deflator because it is an imported good and therefore does not affect GDP. Exercise 2: Consider the following economic data: Sneakers Boots Umbrellas Price Quantity Price Quantity Price Quantity 2009 10 50 100 10 3 20 2010 70 40 40 50 4 20 2011 75 3 45 75 100 10 The typical basket of goods of the average consumer contains 4 pairs of sneakers, 5 pairs of boots and 2 umbrellas. Th...
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## This note was uploaded on 02/20/2013 for the course ECON 002 taught by Professor Eudey during the Spring '08 term at UPenn.

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