Inflation Project Price Index and Inflation Units of Price Year Output Per Unit
ID: 1178704 • Letter: I
Question
Inflation Project
Price Index and Inflation
Units of Price
Year Output Per Unit
1 3 3
2 4 4
3 6 5
4 7 7
5 8 8
1. Refer to the above data. If year 3 is chosen as the base year, what is the price index for year 1
2. Refer to the above data. What is the nominal GDP for year 4?
3. Refer to the above data. What is real GDP for year 5?
4. Refer to the above data. In determining real GDP, which year(s) must the nominal GDP be inflated and which year(s) must the nominal GDP be deflated?
Explanation / Answer
(1) Price index = 100 x 3/5 = 60
(2) nominal GDP doe year 4 = 7 x 7 = $49
(3) Real GDP for year 5 = 8 x 5 = $ 40
(4) Year 1 and Year 2 must be deflated while Year 4 and year 5 must be inflated.