Question

Suppose that in 1984 the total output in a single-good economy was 7000 buckets of chicken. Also suppose that in 1984 each bucket of chicken was priced at $10. Finally, assume that in 2000 the price per bucket of chicken was $16 and that 22,000 buckets were produced. Determine the GDP price index for 1984, using 2000 as the base year. By what percentage did the price level, as measured by this index, rise between 1984 and 2000

Answer 1

Answer: GDP price index is 62.5, percentage price level rise is 60%.

Explanation: The GDP price index will be calculated by dividing the 1984 price by the 2000 price and multiplying by 100 thus:

10/16 X 100 = 62.5.

Therefore the GDP price index is 62.5.

To calculated percentage change using the price index, we have:

((100-62.5)/62.5) X 100

= (37.5/62.5) X 100

= 0.6 X 100

= 60%.

We can as well use another method:

((16-10)/10) X 100

= (6/10) X 100

= 0.6 X 100

= 60%