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AP/Econ 2400 Intermediate Macroeconomics I Group 1 Assignment In this assignment, you are asked to reproduce the historical time

graph for the inflation rate in accordance with the GDP deflator and the Consumer Price Index for Canada. You are then asked to shed light on how and why the inflation rates in accordance with the GDP deflator and the CPI are different from each other during the first oil shock in 1973-1974 using a constructed example. Retrieving Data from CANSIM 1. At the York Library website, search for CANSIM under e-resources. 2. Enter CANSIM by using your Passport York account. 3. In the main menu, choose Browse tables by subjects. 4. Find the subject Prices and price indexes, 5. Locate the series Consumer price index (CPI), 2009 basket, annually (2002=100) and click on [by dimensions]. Under Geography, select Canada and under Commodities and commodity groups, select all items and click submit. 6. Put a check on the box for the series V41693271 and click Add selected to the series cart. 7. Go back to main menu, repeat steps 3 and 4 and locate the series Gross Domestic Product (GDP) indexes, annually (2002=100) and click on [by dimensions]. Under Indexes, select Implicit chain price index 2002=100 and under Estimates, select Gross Domestic Product (GDP) at market prices and click submit. 8. Put a check on the box for the series V3860248 and click Add selected to the series cart. 9. Now, your series cart should contain these two series. Put a check on the boxes for both series V41693271 and V3860248 and in 2. Optionally specify a time period:, enter 1961 as Start Date and 2010 as End Date. In 4. Output format choose MS Excel ready and click Retrieve all series from the cart. 10. An Excel Table containing both series should appear. Copy and paste the file onto a new spreadsheet. Constructing inflation rate series using EXCEL The series you obtain are the price indexes but not the inflation rate series. To turn the price indexes into inflation rate, you need to enter the rate of change formula. For example, if the cell B1 contains the data of CPI for year 1961 and the cell B2 contains the data of CPI for year 1962, to obtain the inflation rate according to the CPI over the years from 1961 to 1962, enter =(B2-B1)/B1. You could then fill down to obtain the inflation rates for other years. Your task is to construct an inflation rate series according the CPI and an inflation rate series according to the GDP deflator, and then produce the time graphs for both series on the same graph.

Using the following constructed example to illustrate the discrepancy between the inflation rate calculated from the CPI and from the GDP deflator in the 70s
Year 1973 1974 Primary products Price Quantity 80 80 120 72 Manufacturing products Price Quantity 120 100 130 110 Services Price Quantity 100 200 110 215

(a) Suppose the economy produces the above three types of final goods and services. Find the % change in the price of primary products, the % change in the price of manufacturing products and the % change in the price of services over the years. (b) Use 1973 as the base year. Find the GDP deflator for 1973 and 1974 and compute the inflation rate over the years. (c) Now, suppose of the primary products are exported while are purchased by domestic households. (So domestic households purchase 20 units of primary products in 1973 and 18 units of primary products in 1974.) All manufacturing products and services are purchased by domestic households. Households purchase no other products. Use 1973 as the base year. Find the CPI for 1973 and 1974 and compute the inflation rate over the years. (d) Explain the discrepancy between the inflation rates calculated from the GDP deflator and in the CPI in the example. Relate it to the actual discrepancy in the 70s.