Answer
a) 37.14% increase
b) 37.50% increase
c) They are different since the CPI method holds the baskets equal while the GDP deflator method allows the baskets to change.
Work Step by Step
a)
2014 basket:
1 machine for 40 dollars each
3 CDs for 10 dollars each
$1*40+3*10$
$40+30=70$
2015 basket:
1 machine for 60 dollars each
3 CDs for 12 dollars each
$1*60+3*12$
$60+36=96$
$(96-70)/70*100$
$26/70*100$
$37.14$%
b)
2014 nominal GDP:
$10*40+30*10$
$40+300$
$340$
2015 nominal GDP:
$12*60+50*12$
$720+600$
$1320$
2014 real GDP (2014 base year):
$10*40+30*10$
$40+300$
$340$
2015 real GDP (2014 base year):
$10*60+30*12$
$600+360$
$960$
2014 GDP deflator:
$(340/340)*100$
$1*100$
$100$
2015 GDP deflator:
$1320/960*100$
$1.375*100$
$137.50$
$(137.50-100)/100*100$
$37.50/100*100$
$37.50$
c)
