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© 2000 - 2004
Douglas A. Ruby


Inflation

National Income Accounting

Macroeconomics

Tutorial -- Macroeconomic Data

Given the following data:
  Base Year 1998 1999 2000
Good PQ PQ PQ PQ
Apples 1.50100 1.60120 1.60150 1.75150
Bread 1.00200 1.25225 1.25230 1.30230
Milk 1.25150 1.40140 1.40180 1.50180
A. Calculate the values of Nominal GDP NGDP and Real GDP RGDP for the years: 1998, 1999, 2000. In what way do these values differ for each year?

B. Calculate the rates of Economic Growth between the years 1998 & 1999 and between 1999 & 2000. Explain the results.

IPD = SPi,tQi,t / S Pi,oQi,t


Use the mouse to click on any price / quantity cell to change the numeric values.
The GDP (Implicit Price) Deflator

  Base Year 1998 1999 2000
Good PQ PQ PQ PQ
Apples 1.50100 1.60120 1.60150 1.75150
Bread 1.00200 1.25225 1.25230 1.30230
Milk 1.25150 1.40140 1.40180 1.50180
C. Calculate the value of the GDP Deflator and CPI for the year 2000. Why do these values differ?

D. Calculate the rate of Inflation between the years 1998 & 1999 and 1999 & 2000.

The Consumer Price Index

CPI = SPi,tQi,o / S Pi,oQi,o

Use the mouse to click on any price / quantity cell to change the numeric values.

Answers...
A. Changes in Nominal GDP reflect both changes in market prices and quantities. Thus NGDP is larger between 1998 & 1999 due to growth in output and larger between 1999 & 2000 due to higher prices (quantities are unchanged). There is growth in RGDP between 1998 & 1999 due to growth in output (even though prices are unchanged). However, between 1999 & 2000 RGDP remains unchanged since only prices are changing.

B. The rate of economic growth is calculated using changes in Real GDP:
rate of economic growth = %ΔRGDP = (RGDPt - RGDPt-1) / RGDPt-1
C. The GDP Deflator is calculated using weights based on current levels of output. Quantities which change from year to year. The CPI is based on wieghts using Base Year quantities which remain constant as this price index is calculated from one year to the next.

D. The rate of Inflation is calculated using changes in the CPI:
π = %ΔCPI = (CPIt - CPIt-1) / CPIt-1