In year 1 and year 2, two products are produced in a given economy, bicycles and computers. Suppose there are no intermediate goods. In year 1, 500 bicycles are produced and sold at $500 each, and in year 2420 bicycles are sold at $600 each. In year 1, 300 computers are sold for $800 each, and in year 2, 355 computers are sold for $850 each.
Calculate nominal GDP in each year.
Calculate real GDP in each year, and the percentage increase in real GDP from year 1 to year 2 using alternatively the first and second year as the base year. What is real GDP growth using the chain weighted method? Show that real chain-weighted GDP in year 2 using year 1 as the base year is equal to $491, 470.
Calculate the implicit GDP price deflator and the implied percentage inflation rate using year 1 as the base year. Calculate the CPI and the CPI inflation rate using the same base year. Can you explain why the CPI inflation is different from the one computed from the GDP deflator? Is it a systematic feature that you would expect?