Question

Assume an economy in which only broccoli and cauliflower are produced. In year 1, 500 million pounds of broccoli are produced and consumed and its price is $0.50 per pound, while 300 million pounds of cauliflower are produced and consumed and its price is $0.80 per pound. In year 2, 400 million pounds of broccoli are produced and consumed and its price is $0.60 per pound, while 350 million pounds of cauliflower are produced and its price is $0.85 per pound.
(a) Using year 1 as the base year, calculate the GDP price deflator in years 1 and 2, and calculate the rate of inflation between years 1 and 2 from the GDP price deflator.
(b) Using year 1 as the base year, calculate the CPI in years 1 and 2, and calculate the CPI rate of inflation. Explain any differences in your results between parts (a) and (b).



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  • CreatedDecember 05, 2014
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