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Question
Statistics
Posted 10 months ago

The nation of Cuddlevia manufactures just two goods: short-sleeved snuggies and body pillows. The table below shows the output and prices of these two goods over several years.
\begin{tabular}{lllll}
\begin{tabular}{l} 
Time \\
period
\end{tabular} & \begin{tabular}{l} 
Output of short- \\
sleeved snuggies
\end{tabular} & \begin{tabular}{l} 
Price of short- \\
sleeved snuggies
\end{tabular} & \begin{tabular}{l} 
Output of \\
body pillows
\end{tabular} & \begin{tabular}{l} 
Price of body \\
pillows
\end{tabular} \\
\hline 2016 & 40 & $8\$ 8 & 22 & $16\$ 16 \\
2017 & 50 & $10\$ 10 & 25 & $20\$ 20 \\
2018 & 44 & $9\$ 9 & 32 & $20\$ 20
\end{tabular}

What is the GDP deflator price index for 2017 using 2016 as a base year?
Choose 1 answer:
(A) $800\$ 800
(B) 80
(C) 125\mathbf{1 2 5}
(D) 25%25 \%
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Answer from Sia
Posted 10 months ago
Solution by Steps
step 1
Calculate the Nominal GDP for 2017 by multiplying the output of each good by its price in 2017: Nominal GDP2017=(Output of short-sleeved snuggies2017×Price of short-sleeved snuggies2017)+(Output of body pillows2017×Price of body pillows2017) \text{Nominal GDP}_{2017} = ( \text{Output of short-sleeved snuggies}_{2017} \times \text{Price of short-sleeved snuggies}_{2017} ) + ( \text{Output of body pillows}_{2017} \times \text{Price of body pillows}_{2017} )
step 2
Using the data from the table: Nominal GDP2017=(50×$10)+(25×$20)=$500+$500=$1000 \text{Nominal GDP}_{2017} = (50 \times \$10) + (25 \times \$20) = \$500 + \$500 = \$1000
step 3
Calculate the Real GDP for 2017 using the prices from the base year, 2016: Real GDP2017=(Output of short-sleeved snuggies2017×Price of short-sleeved snuggies2016)+(Output of body pillows2017×Price of body pillows2016) \text{Real GDP}_{2017} = ( \text{Output of short-sleeved snuggies}_{2017} \times \text{Price of short-sleeved snuggies}_{2016} ) + ( \text{Output of body pillows}_{2017} \times \text{Price of body pillows}_{2016} )
step 4
Using the data from the table: Real GDP2017=(50×$8)+(25×$16)=$400+$400=$800 \text{Real GDP}_{2017} = (50 \times \$8) + (25 \times \$16) = \$400 + \$400 = \$800
step 5
Calculate the GDP deflator for 2017 using the formula: GDP deflator2017=(Nominal GDP2017Real GDP2017)×100 \text{GDP deflator}_{2017} = \left( \frac{\text{Nominal GDP}_{2017}}{\text{Real GDP}_{2017}} \right) \times 100
step 6
Using the values from steps 2 and 4: GDP deflator2017=($1000$800)×100=1.25×100=125 \text{GDP deflator}_{2017} = \left( \frac{\$1000}{\$800} \right) \times 100 = 1.25 \times 100 = 125
Answer
C
Key Concept
GDP Deflator Calculation
Explanation
The GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. It is calculated by dividing the Nominal GDP by the Real GDP and then multiplying by 100.

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