Management and

Business in Context 2
week 2.

Practice
 Growth rate
 Basket of goods in 2002 costs €1,200.
 The same basket in 2010 costs €1,436.
 Inflation rate = ?
 (1436 – 1200) / 1200 = 0.197 = 19.7%

 Base Year is 2002. CPI2002 = 100

 CPI2010 = ?
 119.7

 Prices increased between 2002 and 2010 by

…. percent
 19.7%
 Formulae

 Nominal = real GDP for 2009:

P 09
apples
´Q
09
apples
+P09
big mac
´Q
09
big mac
+...+ P09
zucchini
´Q 09
zucchini

 Nominal GDP for 2013:

P 13
apples
´Q
13
apples
+P13
big mac
´Q
13
big mac
+...+ P13
zucchini
´Q 13
zucchini

 Real GDP for 2013 (base year 2009):

P 09
´Q
apples
+P 13
apples
09
big mac
´Q 13
big mac
+...+ P 09
zucchini
´Q 13
zucchini

 CPI for 2013

13 09 13 09 13 09
𝑃𝑎𝑝𝑝𝑙𝑒𝑠 × 𝑄𝑎𝑝𝑝𝑙𝑒𝑠 + 𝑃𝑏𝑖𝑔 𝑚𝑎𝑐 × 𝑄𝑏𝑖𝑔 𝑚𝑎𝑐 + ⋯ + 𝑃𝑧𝑢𝑐𝑐ℎ𝑖𝑛𝑖 × 𝑄𝑧𝑢𝑐𝑐ℎ𝑖𝑛𝑖

© 2015 Pearson Education, Ltd.

 Example 1

2010 2011
Apples Milk Books Apples Milk Books
(kg) (litre) (piece) (kg) ( litre ) (piece)

Quantity 100 120 50 150 140 55

Price 2 4 10 3 4.5 20

Value of nominal GDP for 2010, 2011 = ? growth rate = ?

Value of real GDP for 2010, 2011 = ? growth rate = ?
GDP Deflator = ? CPI = ? Inflation = ?
Solutions to Example 1
 Nom GDP10=1180 Nom GDP11= 2180
 real GDP10 = 1180 real GDP11 = 1410
 Nominal growth: ~ 85%
 Real growth: ~ 19.5%
 Deflator: 155
 CPI: 156
 Inflation: 56%