Question

1. consider an economy with two goods, cheese and salad. suppose that the prices and quantities sold in 2012 and 2013 are the following:

7 points
good | 2012 price | 2013 price | 2012 quantity | 2013 quantity
cheese | 10 | 12 | 10 | 9
salad | 15 | 16 | 5 | 8
a. calculate the nominal gdp for 2012 and for 2013.
b. calculate the real gdp for 2013 using 2012 as a base year.
c. calculate the real gdp growth rate for 2012 to 2013, round to nearest tenth.
d. calculate the cost of the cpi basket if the market basket includes 2 cheese and 1 salad in 2012.
e. assume the base year is 2012 and the market basket includes 2 cheese and 1 salad. calculate the cpi for 2013

Explanation:

Step1: Calculate 2012 Nominal GDP

Sum (2012 Price × 2012 Quantity)
$$(10 \times 10) + (15 \times 5) = 100 + 75 = 175$$

Step2: Calculate 2013 Nominal GDP

Sum (2013 Price × 2013 Quantity)
$$(12 \times 9) + (16 \times 8) = 108 + 128 = 236$$

Step3: Calculate 2013 Real GDP (2012 base)

Sum (2012 Price × 2013 Quantity)
$$(10 \times 9) + (15 \times 8) = 90 + 120 = 210$$

Step4: Calculate Real GDP Growth Rate

Use growth rate formula: $\frac{\text{2013 Real GDP} - \text{2012 Real GDP}}{\text{2012 Real GDP}} \times 100\%$
$$\frac{210 - 175}{175} \times 100\% = \frac{35}{175} \times 100\% = 20.0\%$$

Step5: Calculate 2012 CPI Basket Cost

Sum (2012 Price × Basket Quantity)
$$(10 \times 2) + (15 \times 1) = 20 + 15 = 35$$

Step6: Calculate 2013 CPI

Use CPI formula: $\frac{\text{2013 Basket Cost}}{\text{2012 Basket Cost}} \times 100$
First find 2013 basket cost: $(12 \times 2) + (16 \times 1) = 24 + 16 = 40$
$$\frac{40}{35} \times 100 \approx 114.3$$

Answer:

a. 2012 Nominal GDP: 175; 2013 Nominal GDP: 236
b. 2013 Real GDP (2012 base): 210
c. Real GDP Growth Rate: 20.0%
d. 2012 CPI Basket Cost: 35
e. 2013 CPI: 114.3