Suppose that the chain-weighted index for GDP in Panama was 180 in 2011 and 188 in 2012. The inflation rate between those two years was approximately
A) 1.1 percent.
B) 4.4 percent.
C) 8 percent.
D) 10.4 percent.

Question

Quizplus · Accepted Answer

To find the inflation rate, we need to use the chain-weighted formula which takes into account changes in both prices and quantities between two years. That is, we need to find the growth rate of real GDP between 2011 and 2012, and subtract it from the nominal GDP growth rate. Using the formula for chain-weighted GDP, we have:

GDP in 2012 (chained) = (GDP in 2011) × (Price Level in 2012) ÷ (Price Level in 2011)

188 = 180 × (PL2012) ÷ (PL2011)

PL2012 ÷ PL2011 = 188 ÷ 180 = 1.0444 (approx)

The inflation rate between 2011 and 2012 is the percentage change in the price level, which is:

Inflation rate = (PL2012 - PL2011) ÷ PL2011 × 100%

= (1.0444 - 1) ÷ 1 × 100% = 4.44% (approx)

Therefore, the answer is B) 4.4 percent.

Suppose That the Chain-Weighted Index for GDP in Panama Was