Explain how the technique of chain-weighted real gdp

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Reference no: EM13150425

Suppose an economy produces only food and clothing, and that price and quantity data are given in the table below. Year 1 Year 2 Good Quantity Price Quantity Price Food 20 £6 25 £10 Clothing 10 £8 20 £7 (a) Compute year 1 nominal GDP and year 2 nominal GDP. Now sup- pose that year 1 is the base year. Compute year 2 real GDP, the growth rate of real GDP and the implicit price deflator for year 2. (b) Suppose that year 2 is the base year. Compute year 1 real GDP, the growth rate of real GDP and the implicit price deflator for year 1. (c) Using your answers above, why does the growth rate of real GDP differ depending on the base year? (d) Explain how the technique of Chain-Weighted Real GDP alleviates this problem.

Reference no: EM13150425

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