How to calculate inflation? (1 Viewer)

[kuromusha]

An economy has three goods, cars, computer and oranges. Prices and quantity produced are shown in the picture below. How can I calculate the inflation and eliminate the effect of changes in quantity?

 

[b0b101]

First calculate the unit price of each product for each year. Then add them up for each year so you have 1 value for each year. Then compare the eachs years value to each other [ie: (year2/year 1) * 100.]

 

[kuromusha]

You have to use GDP deflator to calculate the inflation.

 

[si2136]

View attachment 33141

 

[kuromusha]

Apparently according to Blanchard's Macroeconomics, you're suppose to take the average price of the two years to calculate the deflator, because you you could have chosen 2012 to be your base year instead of 2011, and you'd get a different inflation, and choosing one base year over another doesn't make it more correct or incorrect.

 

[si2136]

Apparently according to Blanchard's Macroeconomics, you're suppose to take the average price of the two years to calculate the deflator, because you you could have chosen 2012 to be your base year instead of 2011, and you'd get a different inflation, and choosing one base year over another doesn't make it more correct or incorrect.

But only 2 years were given, so I didn't really get the point of taking the avg. of the two years, rather than using 2011 as the base.

However, the inflation percentage was the same

 

[kuromusha]

Not the same, but very close.

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