Worksheet 4

Data Table Inflation-1:  Data for the Imaginary Land of Lukistan

Lukistan is a small hypothetical country run by the benevolent dictator economist for whom the country is named.  In the years 1990 through 1994 it recorded the following macroeconomic performance.   Using the data in this table, you should first calculate the data for the empty cells in this table.  Do not compare this data to any data you might find for Lukistan in other worksheets.  Since Lukistan is imaginary, history changes at the whim of the teaching professor.

Year GDP Deflator Inflation Rate
1990 92.0
1991 95.0
1992 100.0
1993 105.0
1994 110.5
1995 108.2

Data Table Inflation-2:  Selected Data for the United States

The following table provides data for two commonly used price indexes in the U.S. for selected pairs of years.  Using the data in this table, you should first calculate the data for the empty (unshaded) cells in this table. This data is real data from FRED, but is rounded for simpler calculations, year-end values used.

Year GDP Deflator Price Index 2005=100.0 Inflation Rate calculated from GDP Deflator Consumer Price Index (CPI) 2005 = 100.0 Inflation Rate calculated from CPI
1930 10.2 16.1
1931 9.2 14.3
1950 15.6 25.4
1951 15.7 26.5
1970 25.1 20.4
1971 26.3 21.0
1980 50.9 44.5
1981 54.4 48.3
1990 74.3 68.9
1991 76.0 70.7
2000 90.1 89.7
2001 91.6 90.7
2010 112.4 112.8
2011 114.6 116.1

TO COMPLETE THE WORKSHEET, go to your Learning Management System (D2L at LCC) and complete the “quiz” labeled Unit 4 Worksheet.

TIPS:

1. If you need a formula to calculate a particular field, check out the page on inflation rate calculations in the Unit 4 Closer Look.
2. Calculate all the missing data in the tables first. Then try to answer questions.
3. The cells that are grayed-out cannot have data calculated because we do not know the year previous – look closely at the years.
4. Formatting:  round your answers and format them the same as in the table used. If entering inflation rates, enter them using a rounded percentage number, including the percent and any minus sign with no spaces in the answer. Ex:  9.9% or -9.9%

Questions:

1. What was the inflation rate in Lukistan in 1993?
2. What was the inflation rate in Lukistan in 1991?
3. In Lukistan, what was the inflation rate in the base year?
4. In what year, if any, did Lukistan experience deflation? (if it didn’t experience inflation, enter 0000)
5. What was the inflation rate in US, using the CPI, in 1971?
6. What was the inflation rate in US, using GDP Deflator, in 1971?
7. The Great Depression started in 1929 and lasted throughout the 1930’s. By how much did prices decline in general in 1931 (using CPI)?
8. Let us suppose for the sake of argument, that your professor worked at a corporation in 1980-1981 (I know it seems like he can’t possibly be that old, just assume it was his first job after kindergarten). He had an “excellent” annual employee performance review at the end of 1981 and was granted a salary increase of 8%. Which of the following statements best describes the situation:  (MULTIPLE CHOICE)
9. Which statement best describes the US experience from 1980 through 2010 (not including 2011 – assume a continuous smooth trend through these years):
10. What best explains why the GDP deflator and the CPI give different estimates of the inflation rate in the same year? (MULTIPLE CHOICE)