# Question

In year 1 and year 2, there are two products produced in a given economy, computers and bread. Suppose that there are no intermediate goods. In year 1, 20 computers are produced and sold at $1,000 each, and in year 2, 25 computers are sold at $1,500 each. In year 1, 10,000 loaves of bread are sold for $1.00 each, and in year 2, 12,000 loaves of bread are sold for $1.10 each.

(a) Calculate nominal GDP in each year.

(b) Calculate real GDP in each year, and the percentage increase in real GDP from year 1 to year 2 using year 1 as the base year. Next, do the same calculations using the chain-weighting method.

(c) Calculate the implicit GDP price deflator and the percentage inflation rate from year 1 to year 2 using year 1 as the base year. Next, do the same calculations using the chain-weighting method.

(d) Suppose that computers in year 2 are twice as productive as computers in year 1. That is, computers are of higher quality in year 2 in the sense that one computer in year 2 is equivalent to two computers in year 1. How does this change your calculations in parts (a) to (c)? Explain any differences.

(a) Calculate nominal GDP in each year.

(b) Calculate real GDP in each year, and the percentage increase in real GDP from year 1 to year 2 using year 1 as the base year. Next, do the same calculations using the chain-weighting method.

(c) Calculate the implicit GDP price deflator and the percentage inflation rate from year 1 to year 2 using year 1 as the base year. Next, do the same calculations using the chain-weighting method.

(d) Suppose that computers in year 2 are twice as productive as computers in year 1. That is, computers are of higher quality in year 2 in the sense that one computer in year 2 is equivalent to two computers in year 1. How does this change your calculations in parts (a) to (c)? Explain any differences.

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