please help with #7 ABC 6 Inflation in the orange and boomerang economy: Conside
ID: 1152142 • Letter: P
Question
please help with #7 ABC
6 Inflation in the orange and boomerang economy: Consider the economy fro exercise 4. Calculate the inflation rate for the 2020-2021 period using the GDP deflator based on the Laspeyres, Paasche, and chain-weighted inde xes of GDP 7) How large is the economy of India? Indian GDP in 2014 was 119 trillion rupes while U.S. GDP was $16.5 trillion. The exchange rate in 2014 was 61.0 rupees per dollar. India turns out to have lower prices than the United States (thisis true more generally for poor countries): the price level in India (converted to dollars) divided by the price level in the United States was 0.280 in 2014 (a) What is the ratio of Indian GDP to U.S. GDP if we don't take into account the differences in relative prices and simply use the exchange rate to make the conversion? (b) What is the ratio of real GDP in India to real GDP in the United States in common prices (c) Why are these two numbers different? 8. How large is the economy of Japan? Japanese GDP in 2012 was 468 trillion yen (U.S. GDP was $16.2 trillion). The exchange rate in 2012 was 79.8 yenExplanation / Answer
Answer:
7)
(a) First of all convert Indian GDP to USD:
=119/61
= 1.95 trillion USD.
Now take the ratio of Indian GDP in USD and U.S. GDP:
=1.95/16.5
= 0.118or 11.8%.
Thus, Indian’s GDP is approximately 11.8% of the U.S. GDP.
(b) The price level in India is approximately 0.28 (or 28%) of U.S. prices. Controlling for price di?erentials the Indian GDP is 0.118/0.28= 0.421, in other words, Indian GDP is 42.1% of the U.S.GDP.
(c) The difference is because of the price differentials. Accordingly, the same basket of goods cost less in India.