Let the price of barbancourt (the haitian rum) be $15 a bottle in the year 2000 and$25 dollars in the year 2014, and its production 5,000 and 7,500 bottles respectively for the two years. Let the price of a bag of rice be $200 in 2000 and $350 in 2014, When its production is 10,000 and 25,000 bags for the same two years. Let the price of a bag of beans be $250 in 2000 and $400 in 2014, when its production is 8,000 and 20,000 bags of the two tears respectively. Using the year 2000 as the base year, compute:a. The Nominal GDP for both yearsb. The real GDP for both yearsc. The Implicit Price Deflator for GDP for both yearsd. The CPI for both years

Introduction:

Understanding the economic growth of a country requires an understanding of its gross domestic product (GDP). GDP is the total value of goods and services produced within a country’s borders, and it is measured by either nominal or real GDP. Additionally, the implicit price deflator for GDP and the consumer price index (CPI) are important tools for measuring the inflation rate in a country’s economy. In this article, we will use the example of Haiti to demonstrate how to calculate and interpret these economic indicators using data from the years 2000 and 2014.

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Description:

Haiti is an example of a developing country that has experienced significant economic changes in recent years. To measure these changes, we will use the prices of Barbancourt, a Haitian rum, bags of rice, and beans as proxies for the overall economy. In 2000, Barbancourt cost $15 per bottle, and 5,000 bottles were produced. In 2014, Barbancourt’s price had risen to $25 per bottle, and 7,500 bottles were produced. Similarly, a bag of rice cost $200 in 2000, with 10,000 bags produced. By 2014, the price of a bag of rice had increased to $350, with 25,000 bags produced. Finally, a bag of beans cost $250 in 2000, with 8,000 bags produced, but the price rose to $400 in 2014, with 20,000 bags produced.

Using the year 2000 as the base year, we can calculate Haiti’s economic indicators for both years. Nominal GDP is the total value of goods and services produced at current prices. In 2000, Haiti’s nominal GDP was $5,465,000, calculated as ($15 x 5,000) + ($200 x 10,000) + ($250 x 8,000). By 2014, the nominal GDP had increased to $20,125,000, calculated as ($25 x 7,500) + ($350 x 25,000) + ($400 x 20,000).

Real GDP adjusts for price changes by measuring the value of goods and services produced in constant dollars. Using 2000 as the base year, Haiti’s real GDP in 2000 and 2014 were $5,465,000 and $10,010,000, respectively. The implicit price deflator for GDP measures the inflation rate by comparing the nominal and real GDP. In 2000, the implicit price deflator for GDP was 1.00, indicating no inflation. By 2014, the implicit price deflator for GDP had increased to 2.00, indicating a 100% inflation rate.

The CPI measures the price changes of a fixed basket of goods and services purchased by consumers. Using 2000 as the base year, the CPI for Haiti in 2000 and 2014 were 1.00 and 2.25, respectively. This indicates that the general price level had increased by 125% between 2000 and 2014.

Overall, these economic indicators provide insight into Haiti’s economic growth and the inflation rate between 2000 and 2014.

Objectives:

– To understand the concept of Nominal GDP and how it differs from Real GDP

– To compute Nominal GDP and Real GDP using the given data

– To understand the concept of Implicit Price Deflator for GDP and compute it using the given data

– To understand the concept of Consumer Price Index (CPI) and compute it using the given data

Learning Outcomes:

By the end of this lesson, students will be able to:

– Define the terms Nominal GDP, Real GDP, Implicit Price Deflator for GDP, and CPI

– Calculate Nominal GDP and Real GDP using the given data

– Calculate the Implicit Price Deflator for GDP using the given data

– Calculate the CPI using the given data

Headings:

1. Understanding Nominal GDP and Real GDP

2. Computing Nominal GDP and Real GDP

3. Understanding the Implicit Price Deflator for GDP

4. Computing the Implicit Price Deflator for GDP

5. Understanding the Consumer Price Index (CPI)

6. Computing the CPI

Note: The following calculations will be done for both years 2000 and 2014.

1. Understanding Nominal GDP and Real GDP

– Define Nominal GDP and Real GDP

– Explain how Real GDP differs from Nominal GDP

– Discuss the importance of using Real GDP in economic analysis

2. Computing Nominal GDP and Real GDP

– Explain the formula for calculating Nominal GDP

– Explain the formula for calculating Real GDP

– Compute the Nominal GDP using the given data

– Compute the Real GDP using the given data

3. Understanding the Implicit Price Deflator for GDP

– Define the Implicit Price Deflator for GDP

– Discuss the importance of the Implicit Price Deflator for GDP in inflation measurement

– Explain how the Implicit Price Deflator for GDP differs from CPI

4. Computing the Implicit Price Deflator for GDP

– Explain the formula for calculating the Implicit Price Deflator for GDP

– Compute the Implicit Price Deflator for GDP using the given data

5. Understanding the Consumer Price Index (CPI)

– Define the Consumer Price Index (CPI)

– Explain how the CPI measures inflation

– Discuss the importance of the CPI in economic analysis

6. Computing the CPI

– Explain the formula for calculating the CPI

– Compute the CPI using the given data

Solution 1:

The Base Year is 2000.

a. Nominal GDP for both years:

Nominal GDP 2000 = (Price of Barbancourt x Production of Barbancourt) + (Price of rice x Production of rice) + (Price of beans x Production of beans)

Nominal GDP 2000 = ($15 x 5,000) + ($200 x 10,000) + ($250 x 8,000)

Nominal GDP 2000 = $75,000 + $2,000,000 + $2,000,000

Nominal GDP 2000 = $4,075,000

Nominal GDP 2014 = (Price of Barbancourt x Production of Barbancourt) + (Price of rice x Production of rice) + (Price of beans x Production of beans)

Nominal GDP 2014 = ($25 x 7,500) + ($350 x 25,000) + ($400 x 20,000)

Nominal GDP 2014 = $187,500 + $8,750,000 + $8,000,000

Nominal GDP 2014 = $17,937,500

b. Real GDP for both years:

Real GDP 2000 = (Price of Barbancourt in 2000 x Production of Barbancourt) + (Price of rice in 2000 x Production of rice) + (Price of beans in 2000 x Production of beans)

Real GDP 2000 = ($15 x 5,000) + ($200 x 10,000) + ($250 x 8,000)

Real GDP 2000 = $75,000 + $2,000,000 + $2,000,000

Real GDP 2000 = $4,075,000

Real GDP 2014 = (Price of Barbancourt in 2000 x Production of Barbancourt) + (Price of rice in 2014 x Production of rice) + (Price of beans in 2014 x Production of beans)

Real GDP 2014 = ($15 x 7,500) + ($350 x 25,000) + ($400 x 20,000)

Real GDP 2014 = $112,500 + $8,750,000 + $8,000,000

Real GDP 2014 = $16,862,500

c. Implicit Price Deflator for GDP for both years:

Implicit Price Deflator for GDP 2000 = (Nominal GDP 2000 / Real GDP 2000) x 100

Implicit Price Deflator for GDP 2000 = ($4,075,000 / $4,075,000) x 100

Implicit Price Deflator for GDP 2000 = 100

Implicit Price Deflator for GDP 2014 = (Nominal GDP 2014 / Real GDP 2014) x 100

Implicit Price Deflator for GDP 2014 = ($17,937,500 / $16,862,500) x 100

Implicit Price Deflator for GDP 2014 = 106.366

d. CPI for both years:

CPI 2000 = [(Price of Barbancourt in 2000 x Quantity of Barbancourt in 2000) + (Price of rice in 2000 x Quantity of rice in 2000) + (Price of beans in 2000 x Quantity of beans in 2000)] / [(Price of Barbancourt in 2000 x Quantity of Barbancourt in 2000) + (Price of rice in 2000 x Quantity of rice in 2000) + (Price of beans in 2000 x Quantity of beans in 2000)]

CPI 2000 = [($15 x 5,000) + ($200 x 10,000) + ($250 x 8,000)] / [($15 x 5,000) + ($200 x 10,000) + ($250 x 8,000)]

CPI 2000 = 1

CPI 2014 = [(Price of Barbancourt in 2014 x Quantity of Barbancourt in 2000) + (Price of rice in 2014 x Quantity of rice in 2000) + (Price of beans in 2014 x Quantity of beans in 2000)] / [(Price of Barbancourt in 2000 x Quantity of Barbancourt in 2000) + (Price of rice in 2000 x Quantity of rice in 2000) + (Price of beans in 2000 x Quantity of beans in 2000)]

CPI 2014 = [($25 x 5,000) + ($350 x 10,000) + ($400 x 8,000)] / [($15 x 5,000) + ($200 x 10,000) + ($250 x 8,000)]

CPI 2014 = 1.717

Solution 2:

The Base Year is 2014.

a. Nominal GDP for both years:

Nominal GDP 2000 = (Price of Barbancourt x Production of Barbancourt) + (Price of rice x Production of rice) + (Price of beans x Production of beans)

Nominal GDP 2000 = ($15 x 7,500) + ($350 x 25,000) + ($400 x 20,000)

Nominal GDP 2000 = $112,500 + $8,750,000 + $8,000,000

Nominal GDP 2000 = $16,862,500

Nominal GDP 2014 = (Price of Barbancourt x Production of Barbancourt) + (Price of rice x Production of rice) + (Price of beans x Production of beans)

Nominal GDP 2014 = ($25 x 5,000) + ($200 x 10,000) + ($250 x 8,000)

Nominal GDP 2014 = $125,000 + $2,000,000 + $2,000,000

Nominal GDP 2014 = $4,125,000

b. Real GDP for both years:

Real GDP 2000 = (Price of Barbancourt in 2014 x Production of Barbancourt) + (Price of rice in 2000 x Production of rice) + (Price of beans in 2000 x Production of beans)

Real GDP 2000 = ($25 x 7,500) + ($200 x 10,000) + ($250 x 8,000)

Real GDP 2000 = $187,500 + $2,000,000 + $2,000,000

Real GDP 2000 = $4,187,500

Real GDP 2014 = (Price of Barbancourt in 2014 x Production of Barbancourt) + (Price of rice in 2014 x Production of rice) + (Price of beans in 2014 x Production of beans)

Real GDP 2014 = ($25 x 5,000) + ($350 x 25,000) + ($400 x 20,000)

Real GDP 2014 = $125,000 + $8,750,000 + $8,000,000

Real GDP 2014 = $16,875,000

c. Implicit Price Deflator for GDP for both years:

Implicit Price Deflator for GDP 2000 = (Nominal GDP 2000 / Real GDP 2000) x 100

Implicit Price Deflator for GDP 2000 = ($4,125,000 / $4,187,500) x 100

Implicit Price Deflator for GDP 2000 = 98.507

Implicit Price Deflator for GDP 2014 = (Nominal GDP 2014 / Real GDP 2014) x 100

Implicit Price Deflator for GDP 2014 = ($16,862,500 / $16,875,000) x 100

Implicit Price Deflator for GDP 2014 = 99.926

d. CPI for both years:

CPI 2000 = [(Price of Barbancourt in 2014 x Quantity of Barbancourt in 2000) + (Price of rice in 2000 x Quantity of rice in 2000) + (Price of beans in 2000 x Quantity of beans in 2000)] / [(Price of Barbancourt in 2014 x Quantity of Barbancourt in 2000) + (Price of rice in 2000 x Quantity of rice in 2000) + (Price of beans in 2000 x Quantity of beans in 2000)]

CPI 2000 = [($25 x 5,000) + ($200 x 10,000) + ($250 x 8,000)] / [($25 x 5,000) + ($200 x 10,000) + ($250 x 8,000)]

CPI 2000 = 1

CPI 2014 = [(Price of Barbancourt in 2000 x Quantity of Barbancourt in 2000) + (Price of rice in 2014 x Quantity of rice in 2000) + (Price of beans in 2014 x Quantity of beans in 2000)] / [(Price of Barbancourt in 2014 x Quantity of Barbancourt in 2000) + (Price of rice in 2000 x Quantity of rice in 2000) + (Price of beans in 2000 x Quantity of beans in 2000)]

CPI 2014 = [($15 x 5,000) + ($350 x 10,000) + ($400 x 8,000)] / [($25 x 5,000) + ($200 x 10,000) + ($250 x 8,000)]

CPI 2014 = 0.585

Suggested Resources/Books:

1. Principles of Macroeconomics by N. Gregory Mankiw

2. Macroeconomics by David Colander

3. Introduction to Economic Growth by Charles I. Jones

Similar Asked Questions:

1. What is GDP and how is it calculated?

2. What is the difference between nominal GDP and real GDP?

3. What is the importance of GDP in measuring a country’s economy?

4. What is the relationship between GDP and inflation?

5. How is the CPI calculated and what is its significance in measuring inflation?

Calculations:

a. The Nominal GDP for both years

2000: (5,000 x $15) + (10,000 x $200) + (8,000 x $250) = $2,150,000

2014: (7,500 x $25) + (25,000 x $350) + (20,000 x $400) = $21,225,000

b. The real GDP for both years

Using the year 2000 as the base year:

Real GDP (2000) = Nominal GDP (2000) = $2,150,000

Real GDP (2014) = (7,500 x $15) + (25,000 x $200) + (20,000 x $250) = $6,850,000

c. The Implicit Price Deflator for GDP for both years

Implicit Price Deflator (2000) = (Nominal GDP/Real GDP) x 100

= ($2,150,000/$2,150,000) x 100 = 100

Implicit Price Deflator (2014) = ($21,225,000/$6,850,000) x 100 = 309.92

d. The CPI for both years

CPI (2000) = (Cost of Market Basket in the current year/Cost of Market Basket in the base year) x 100

= (($15 x 1) + ($200 x 1) + ($250 x 1))/($15 x 1) x 100 = 1,700

CPI (2014) = (($25 x 1) + ($350 x 1) + ($400 x 1))/($15 x 1) x 100 = 3,566.66Let the price of barbancourt (the haitian rum) be $15 a bottle in the year 2000 and$25 dollars in the year 2014, and its production 5,000 and 7,500 bottles respectively for the two years. Let the price of a bag of rice be $200 in 2000 and $350 in 2014, When its production is 10,000 and 25,000 bags for the same two years. Let the price of a bag of beans be $250 in 2000 and $400 in 2014, when its production is 8,000 and 20,000 bags of the two tears respectively. Using the year 2000 as the base year, compute:a. The Nominal GDP for both yearsb. The real GDP for both yearsc. The Implicit Price Deflator for GDP for both yearsd. The CPI for both years

Introduction:

Understanding the economic growth of a country requires an understanding of its gross domestic product (GDP). GDP is the total value of goods and services produced within a country’s borders, and it is measured by either nominal or real GDP. Additionally, the implicit price deflator for GDP and the consumer price index (CPI) are important tools for measuring the inflation rate in a country’s economy. In this article, we will use the example of Haiti to demonstrate how to calculate and interpret these economic indicators using data from the years 2000 and 2014.

Description:

Haiti is an example of a developing country that has experienced significant economic changes in recent years. To measure these changes, we will use the prices of Barbancourt, a Haitian rum, bags of rice, and beans as proxies for the overall economy. In 2000, Barbancourt cost $15 per bottle, and 5,000 bottles were produced. In 2014, Barbancourt’s price had risen to $25 per bottle, and 7,500 bottles were produced. Similarly, a bag of rice cost $200 in 2000, with 10,000 bags produced. By 2014, the price of a bag of rice had increased to $350, with 25,000 bags produced. Finally, a bag of beans cost $250 in 2000, with 8,000 bags produced, but the price rose to $400 in 2014, with 20,000 bags produced.

Using the year 2000 as the base year, we can calculate Haiti’s economic indicators for both years. Nominal GDP is the total value of goods and services produced at current prices. In 2000, Haiti’s nominal GDP was $5,465,000, calculated as ($15 x 5,000) + ($200 x 10,000) + ($250 x 8,000). By 2014, the nominal GDP had increased to $20,125,000, calculated as ($25 x 7,500) + ($350 x 25,000) + ($400 x 20,000).

Real GDP adjusts for price changes by measuring the value of goods and services produced in constant dollars. Using 2000 as the base year, Haiti’s real GDP in 2000 and 2014 were $5,465,000 and $10,010,000, respectively. The implicit price deflator for GDP measures the inflation rate by comparing the nominal and real GDP. In 2000, the implicit price deflator for GDP was 1.00, indicating no inflation. By 2014, the implicit price deflator for GDP had increased to 2.00, indicating a 100% inflation rate.

The CPI measures the price changes of a fixed basket of goods and services purchased by consumers. Using 2000 as the base year, the CPI for Haiti in 2000 and 2014 were 1.00 and 2.25, respectively. This indicates that the general price level had increased by 125% between 2000 and 2014.

Overall, these economic indicators provide insight into Haiti’s economic growth and the inflation rate between 2000 and 2014.

Objectives:

– To understand the concept of Nominal GDP and how it differs from Real GDP

– To compute Nominal GDP and Real GDP using the given data

– To understand the concept of Implicit Price Deflator for GDP and compute it using the given data

– To understand the concept of Consumer Price Index (CPI) and compute it using the given data

Learning Outcomes:

By the end of this lesson, students will be able to:

– Define the terms Nominal GDP, Real GDP, Implicit Price Deflator for GDP, and CPI

– Calculate Nominal GDP and Real GDP using the given data

– Calculate the Implicit Price Deflator for GDP using the given data

– Calculate the CPI using the given data

Headings:

1. Understanding Nominal GDP and Real GDP

2. Computing Nominal GDP and Real GDP

3. Understanding the Implicit Price Deflator for GDP

4. Computing the Implicit Price Deflator for GDP

5. Understanding the Consumer Price Index (CPI)

6. Computing the CPI

Note: The following calculations will be done for both years 2000 and 2014.

1. Understanding Nominal GDP and Real GDP

– Define Nominal GDP and Real GDP

– Explain how Real GDP differs from Nominal GDP

– Discuss the importance of using Real GDP in economic analysis

2. Computing Nominal GDP and Real GDP

– Explain the formula for calculating Nominal GDP

– Explain the formula for calculating Real GDP

– Compute the Nominal GDP using the given data

– Compute the Real GDP using the given data

3. Understanding the Implicit Price Deflator for GDP

– Define the Implicit Price Deflator for GDP

– Discuss the importance of the Implicit Price Deflator for GDP in inflation measurement

– Explain how the Implicit Price Deflator for GDP differs from CPI

4. Computing the Implicit Price Deflator for GDP

– Explain the formula for calculating the Implicit Price Deflator for GDP

– Compute the Implicit Price Deflator for GDP using the given data

5. Understanding the Consumer Price Index (CPI)

– Define the Consumer Price Index (CPI)

– Explain how the CPI measures inflation

– Discuss the importance of the CPI in economic analysis

6. Computing the CPI

– Explain the formula for calculating the CPI

– Compute the CPI using the given data

Solution 1:

The Base Year is 2000.

a. Nominal GDP for both years:

Nominal GDP 2000 = (Price of Barbancourt x Production of Barbancourt) + (Price of rice x Production of rice) + (Price of beans x Production of beans)

Nominal GDP 2000 = ($15 x 5,000) + ($200 x 10,000) + ($250 x 8,000)

Nominal GDP 2000 = $75,000 + $2,000,000 + $2,000,000

Nominal GDP 2000 = $4,075,000

Nominal GDP 2014 = (Price of Barbancourt x Production of Barbancourt) + (Price of rice x Production of rice) + (Price of beans x Production of beans)

Nominal GDP 2014 = ($25 x 7,500) + ($350 x 25,000) + ($400 x 20,000)

Nominal GDP 2014 = $187,500 + $8,750,000 + $8,000,000

Nominal GDP 2014 = $17,937,500

b. Real GDP for both years:

Real GDP 2000 = (Price of Barbancourt in 2000 x Production of Barbancourt) + (Price of rice in 2000 x Production of rice) + (Price of beans in 2000 x Production of beans)

Real GDP 2000 = ($15 x 5,000) + ($200 x 10,000) + ($250 x 8,000)

Real GDP 2000 = $75,000 + $2,000,000 + $2,000,000

Real GDP 2000 = $4,075,000

Real GDP 2014 = (Price of Barbancourt in 2000 x Production of Barbancourt) + (Price of rice in 2014 x Production of rice) + (Price of beans in 2014 x Production of beans)

Real GDP 2014 = ($15 x 7,500) + ($350 x 25,000) + ($400 x 20,000)

Real GDP 2014 = $112,500 + $8,750,000 + $8,000,000

Real GDP 2014 = $16,862,500

c. Implicit Price Deflator for GDP for both years:

Implicit Price Deflator for GDP 2000 = (Nominal GDP 2000 / Real GDP 2000) x 100

Implicit Price Deflator for GDP 2000 = ($4,075,000 / $4,075,000) x 100

Implicit Price Deflator for GDP 2000 = 100

Implicit Price Deflator for GDP 2014 = (Nominal GDP 2014 / Real GDP 2014) x 100

Implicit Price Deflator for GDP 2014 = ($17,937,500 / $16,862,500) x 100

Implicit Price Deflator for GDP 2014 = 106.366

d. CPI for both years:

CPI 2000 = [(Price of Barbancourt in 2000 x Quantity of Barbancourt in 2000) + (Price of rice in 2000 x Quantity of rice in 2000) + (Price of beans in 2000 x Quantity of beans in 2000)] / [(Price of Barbancourt in 2000 x Quantity of Barbancourt in 2000) + (Price of rice in 2000 x Quantity of rice in 2000) + (Price of beans in 2000 x Quantity of beans in 2000)]

CPI 2000 = [($15 x 5,000) + ($200 x 10,000) + ($250 x 8,000)] / [($15 x 5,000) + ($200 x 10,000) + ($250 x 8,000)]

CPI 2000 = 1

CPI 2014 = [(Price of Barbancourt in 2014 x Quantity of Barbancourt in 2000) + (Price of rice in 2014 x Quantity of rice in 2000) + (Price of beans in 2014 x Quantity of beans in 2000)] / [(Price of Barbancourt in 2000 x Quantity of Barbancourt in 2000) + (Price of rice in 2000 x Quantity of rice in 2000) + (Price of beans in 2000 x Quantity of beans in 2000)]

CPI 2014 = [($25 x 5,000) + ($350 x 10,000) + ($400 x 8,000)] / [($15 x 5,000) + ($200 x 10,000) + ($250 x 8,000)]

CPI 2014 = 1.717

Solution 2:

The Base Year is 2014.

a. Nominal GDP for both years:

Nominal GDP 2000 = (Price of Barbancourt x Production of Barbancourt) + (Price of rice x Production of rice) + (Price of beans x Production of beans)

Nominal GDP 2000 = ($15 x 7,500) + ($350 x 25,000) + ($400 x 20,000)

Nominal GDP 2000 = $112,500 + $8,750,000 + $8,000,000

Nominal GDP 2000 = $16,862,500

Nominal GDP 2014 = (Price of Barbancourt x Production of Barbancourt) + (Price of rice x Production of rice) + (Price of beans x Production of beans)

Nominal GDP 2014 = ($25 x 5,000) + ($200 x 10,000) + ($250 x 8,000)

Nominal GDP 2014 = $125,000 + $2,000,000 + $2,000,000

Nominal GDP 2014 = $4,125,000

b. Real GDP for both years:

Real GDP 2000 = (Price of Barbancourt in 2014 x Production of Barbancourt) + (Price of rice in 2000 x Production of rice) + (Price of beans in 2000 x Production of beans)

Real GDP 2000 = ($25 x 7,500) + ($200 x 10,000) + ($250 x 8,000)

Real GDP 2000 = $187,500 + $2,000,000 + $2,000,000

Real GDP 2000 = $4,187,500

Real GDP 2014 = (Price of Barbancourt in 2014 x Production of Barbancourt) + (Price of rice in 2014 x Production of rice) + (Price of beans in 2014 x Production of beans)

Real GDP 2014 = ($25 x 5,000) + ($350 x 25,000) + ($400 x 20,000)

Real GDP 2014 = $125,000 + $8,750,000 + $8,000,000

Real GDP 2014 = $16,875,000

c. Implicit Price Deflator for GDP for both years:

Implicit Price Deflator for GDP 2000 = (Nominal GDP 2000 / Real GDP 2000) x 100

Implicit Price Deflator for GDP 2000 = ($4,125,000 / $4,187,500) x 100

Implicit Price Deflator for GDP 2000 = 98.507

Implicit Price Deflator for GDP 2014 = (Nominal GDP 2014 / Real GDP 2014) x 100

Implicit Price Deflator for GDP 2014 = ($16,862,500 / $16,875,000) x 100

Implicit Price Deflator for GDP 2014 = 99.926

d. CPI for both years:

CPI 2000 = [(Price of Barbancourt in 2014 x Quantity of Barbancourt in 2000) + (Price of rice in 2000 x Quantity of rice in 2000) + (Price of beans in 2000 x Quantity of beans in 2000)] / [(Price of Barbancourt in 2014 x Quantity of Barbancourt in 2000) + (Price of rice in 2000 x Quantity of rice in 2000) + (Price of beans in 2000 x Quantity of beans in 2000)]

CPI 2000 = [($25 x 5,000) + ($200 x 10,000) + ($250 x 8,000)] / [($25 x 5,000) + ($200 x 10,000) + ($250 x 8,000)]

CPI 2000 = 1

CPI 2014 = [(Price of Barbancourt in 2000 x Quantity of Barbancourt in 2000) + (Price of rice in 2014 x Quantity of rice in 2000) + (Price of beans in 2014 x Quantity of beans in 2000)] / [(Price of Barbancourt in 2014 x Quantity of Barbancourt in 2000) + (Price of rice in 2000 x Quantity of rice in 2000) + (Price of beans in 2000 x Quantity of beans in 2000)]

CPI 2014 = [($15 x 5,000) + ($350 x 10,000) + ($400 x 8,000)] / [($25 x 5,000) + ($200 x 10,000) + ($250 x 8,000)]

CPI 2014 = 0.585

Suggested Resources/Books:

1. Principles of Macroeconomics by N. Gregory Mankiw

2. Macroeconomics by David Colander

3. Introduction to Economic Growth by Charles I. Jones

Similar Asked Questions:

1. What is GDP and how is it calculated?

2. What is the difference between nominal GDP and real GDP?

3. What is the importance of GDP in measuring a country’s economy?

4. What is the relationship between GDP and inflation?

5. How is the CPI calculated and what is its significance in measuring inflation?

Calculations:

a. The Nominal GDP for both years

2000: (5,000 x $15) + (10,000 x $200) + (8,000 x $250) = $2,150,000

2014: (7,500 x $25) + (25,000 x $350) + (20,000 x $400) = $21,225,000

b. The real GDP for both years

Using the year 2000 as the base year:

Real GDP (2000) = Nominal GDP (2000) = $2,150,000

Real GDP (2014) = (7,500 x $15) + (25,000 x $200) + (20,000 x $250) = $6,850,000

c. The Implicit Price Deflator for GDP for both years

Implicit Price Deflator (2000) = (Nominal GDP/Real GDP) x 100

= ($2,150,000/$2,150,000) x 100 = 100

Implicit Price Deflator (2014) = ($21,225,000/$6,850,000) x 100 = 309.92

d. The CPI for both years

CPI (2000) = (Cost of Market Basket in the current year/Cost of Market Basket in the base year) x 100

= (($15 x 1) + ($200 x 1) + ($250 x 1))/($15 x 1) x 100 = 1,700

CPI (2014) = (($25 x 1) + ($350 x 1) + ($400 x 1))/($15 x 1) x 100 = 3,566.66

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