Suppose we calculate the percent change in real GDP from year 1 to year 2 using the prices from year 1, and we get 15 percent. When we calculate the percent change in real GDP from year 1 to year 2 using the prices from year 2, we obtain 12 percent. According to the chain weighting method, the growth of real GDP from year 1 to year 2 is roughly: A. 13.5 percent B. 12.75 percent C. 12.5 percent D. 1.5 percent

a) 13.5%

Explanation:

A chain weighted inflation method is a method that measures or compares both the change in price and pattern of spending. In this case the chain weighted method will be used to measure price change and real GDP in both year 1 and year 2.

Given:

Number of years, n = 2

Using prices from year 1, % change in real GDP = 15%.

Using prices from year 2, % change in real GDP = 12%.

According to the chain weighted method, the growth of real GDP from year 1 to year 2 will be:

(15%/2) + (12%/2)

= 7.5% + 6%

= 13.5%

The growth of real GDP from year1 to year2 is 13.5%