Using the year 2000 as the base year, compute the following statistics for each year: nominal GDP, real GDP, the implicit price deflator for GDP, and a fixed-weight price index such as the CPI. 1.2 List and explain (one or two sentences each) the differences between the CPI Index and the GDP Deflator. Which do you believe is a better measure of actual inflation in the U.S? Why?

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Problem 1
1.1 Consider an economy that produces and consumes bread and automobiles. The
following table contains data for two different years:
Year 2000
$40,000
Year 2010
$50,000
Price of an automobile
Price of a loaf of bread
S1.50
$2.50
Number of automobiles
produced
Number of loaves of
bread produced
100
120
5,000,000
4,000,000
Using the year 2000 as the base year, compute the following statistics for each year: nominal
GDP, real GDP, the implicit price deflator for GDP, and a fixed-weight price index such as
the CPI.
1.2 List and explain (one or two sentences each) the differences between the CPI Index and
the GDP Deflator. Which do you believe is a better measure of actual inflation in the U.S?
Why?
Transcribed Image Text:Problem 1 1.1 Consider an economy that produces and consumes bread and automobiles. The following table contains data for two different years: Year 2000 $40,000 Year 2010 $50,000 Price of an automobile Price of a loaf of bread S1.50 $2.50 Number of automobiles produced Number of loaves of bread produced 100 120 5,000,000 4,000,000 Using the year 2000 as the base year, compute the following statistics for each year: nominal GDP, real GDP, the implicit price deflator for GDP, and a fixed-weight price index such as the CPI. 1.2 List and explain (one or two sentences each) the differences between the CPI Index and the GDP Deflator. Which do you believe is a better measure of actual inflation in the U.S? Why?
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