Reference no: EM133274356

Let's assume that the economy of the UK is represented by an average UK resident who has a basket of consumption that only includes bottles of milk and IT devices. For simplicity, we will assume that these goods are produced locally.

The consumption of 100 bottles of milk in 2021 at a price per unit of one pound sterling per unit. In 2022, this average UK resident reduces its consumption of milk to 70 units, but the price is doubling, with a price per bottle being two pounds sterling. The consumption and price of IT devices remain the same in 2021 and 2022, with two devices consumed at a price of 150 pounds sterling in total, with a price per unit of 75.

1. Using 2021 as a reference year, calculate the growth rate of the nominal and real GDP between 2021 and 2022. Explain your calculations.
2. Using 2021 as a reference year, calculate the growth rate of the GDP deflator between 2021 and 2022.
3. Calculate the CPI for 2021 and 2022 and the inflation rate over the period2021-2022.