Question:

How do you calculate inflation rate between 2 quarters when you are given nominal and real output?

by Guest64438  |  earlier

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This is an economics question. It states:

Using the following information, compute the inflation rate (rate in change in prices) between the first quarter of 2006 and the first quarter of 2007. Data in billions of dollars.

Year 2006:

Nominal Output: $13,008.4

Real Output: $11,316.4

Year 2007:

Nominal Output: $13,620.2

Real Output: $11,532.8

Someone please help if you kow anything about this.

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1 ANSWERS


  1. Change in real output:

    Δ RGDP = 11'532.8 / 11'316.4 = 1.019122689 ≈ + 1.9%

    Nominal output rise due to increase in real output =

    = 13'008.4 * 1.019122689 = 13'257.16

    Change in nominal output due to changes in price level =

    = 13'620.2 / 13'257.16 = 1.027384789 ≈1.0274≈ + 2.74%

    So inflation between given periods was 2.74%

    Or direct method =

    = [ NGDP(2) / NDGP(1) ] x [ RGDP(1) / RDGP(2) ] =

    = [13'620.2 / 13'008.4 ] x [ 11'316.4 / 11'532.8] ≈ 1.0274 = +2.74%

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