Consider an economy that produces and consumes bread and automobiles. In the following table are data for two different years:
Prices and Quantities Year 2000 Year 2010
Price of an Automobile $30,000 $40,000
Price of a Loaf of Bread $10 $20
Number of Automobiles Produced200 225
Number of Loaves of Bread Produced 600,000 400,000
Using the year 2000 as both the base year and the basket year, compute the following statistics for each year:
• (4 %) nominal GDP
• (4 %) real GDP
• (2 %) the implicit price (GDP) deflator
• (4 %) the CPI
Then compute the 10-year inflation rate using the
• (2 %) GDP deflator
• (2 %) CPI
(2 %) Finally, compute the 10-year growth rate (in real GDP) for the economy.