2. National income: growth and inflation. Show all calculations.
2019 
2019 
2020 
2020 
2021 
2021 

Price 
Quantity 
Price 
Quantity 
Price 
Quantity 

Peaches 
$20 
100 
22 
105 
24 
110 
Pears 
$4 
25 
2 
50 
1 
100 
a. Compute nominal and real GDP for each year in an economy that produces only 2 goods, peaches and pears. Use 2019 as the base year.
b. Compute the GDP implicit price deflator for each year. Again, use 2019 as the base year.
c. Find the economic growth rates (Y/Y) and the inflation rates (Y/Y).
d. Repeat parts (a)(c) using 2020 as the base year.
e. Use the chainweighted method with geometric averaging to compute real GDP with a base of 2019. Find the new growth rates.
f. Discuss and compare your findings of the 3 methods of computing growth rates. (Using 2019, 2020, and chained estimates).
(a)
(1) Nominal GDP (NGDP) = (Current year price x Current year quantity)
2019 = 20 x 100 + 4 x 25 = 2000 + 100 = 2100
2020 = 22 x 105 + 2 x 50 = 2310 + 100 = 2410
2021 = 24 x 110 + 1 x 100 = 2640 + 100 = 2740
(2) Real GDP (RGDP) = (Base year (2019) price x Current year quantity)
2019 = 20 x 100 + 4 x 25 = 2000 + 100 = 2100
2020 = 20 x 105 + 4 x 50 = 2100 + 200 = 2300
2021 = 20 x 110 + 4 x 100 = 2200 + 400 = 2600
(b)
GDP Deflator = (NGDP / RGDP) x 100
2019 = (2100 / 2100) x 100 = 100
2020 = (2410 / 2300) x 100 = 104.78
2021 = (2740 / 2400) x 100 = 112.5
(c)
(1) Economic growth rate = % Change in RGDP
2020 = (2300 / 2100)  1 = 1.0952  1 = 0.0952 = 9.52%
2021 = (2600 / 2300)  1 = 1.1304  1 = 0.1304 = 13.04%
(2) Inflation rate = % Change in GDP Deflator
2020 = (104.78 / 100)  1 = 1.0478  1 = 0.0478 = 4.78%
2021 = (112.5 / 104.78)  1 = 1.0737  1 = 0.0737 = 7.37%
(d)
(1) NGDP remains the same irrespective of base year.
(2) Real GDP (RGDP) = (Base year (2020) price x Current year quantity)
2019 = 22 x 100 + 2 x 25 = 2200 + 50 = 2250
2020 = 22 x 105 + 2 x 50 = 2310 + 100 = 2410
2021 = 22 x 110 + 2 x 100 = 2200 + 200 = 2400
(3) GDP Deflator = (NGDP / RGDP) x 100
2019 = (2100 / 2250) x 100 = 93.33
2020 = (2410 / 2410) x 100 = 100
2021 = (2740 / 2400) x 100 = 114.17
(4) Economic growth rate = % Change in RGDP
2020 = (2410 / 2250)  1 = 1.0711  1 = 0.0711 = 7.11%
2021 = (2400 / 2410)  1 = 0.9959  1 =  0.0041 =  0.41%
(5) Inflation rate = % Change in GDP Deflator
2020 = (100 / 93.33)  1 = 1.0715  1 = 0.0715 = 7.15%
2021 = (114.17 / 100)  1 = 1.1417  1 = 0.1417 = 14.17%
NOTE: As per Chegg Answering Policy, 1st 4 parts have been answered.
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