(/ The following table shows nominal GDP and an appropriate price index for a group of selecte years. Compute real GDP. Indicate in each calculation whether you are inflating or deflating the nominal GDP data Nominal GDP Real GDP GDP Price Inflating? Year Billions Billions Index Deflating? 1978 $2,293.8 $5,677.72 40.40 1988 5,100.4 66.98 1998 8,793.5 $ 10,283.59 2005 10,000.0 $10,000.0 2008 14,441.4 108.48 2018 20,501.0 S15,942.92

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3. Consider an economy that only produces mittens. In Year 1, 4000 pairs of mittens are produced and the price is $5 per pair. In the Year 2, 5000 pairs of mittens are produced and the price is $7 per pair. In Year 3, 7000 pair of mittens are produced and the price is $9 per pair. Use Year 1 as the base year. What is the nominal GDP for each year? What is the real GDP for each year? What is the GDP deflator for each year? What is the percentage growth rate of real GDP from year 2 to year 3? What is the inflation rate (as measured by the GDP deflator) from year 2 to year 3?

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Table 2.5.4 from BEA  What categories of consumption expenditures have the highest inflation rate between 2012 and 2021? Are there any categories for which prices are relatively stanle or cheaper?

3. In a small community, breakfast is the most important meal of the day. Therefore, the only two goods that this community produces are coffee and scones in the following amounts: Year 2020 2021 Quantity 60 cups 90 cups Coffee Price $1.25 $1.45 Quantity 45 units 65 units Scones Price $2.10 $3.95 a) Calculate the inflation rate for 2021 using the GDP deflator method (assume that 2020 is the base year for real GDP calculations). Show your work. b) Calculate the inflation rate for 2021 using the CPI method (assume that 2020 is the base year for CPI calculations). Additionally, assume that the consumption basket for both years contains only 10 cups of coffee and 40 scones. Show your work. c) Compare the results of both inflation calculations and explain why they are similar or different based on the two methods and on the specific data used in this example.

4. Calculate the Nominal GDP, Real GDP using 2019 as the base year, and the GDP Deflator. Year Quantity of Milk 100 Price of Honey $4 $4 Price of Milk Quantity of Honey $2 $4 2017 200 2018 100 210 2019 $4 120 $6 220