Question: Hamburgers and beer are the sole goods in a simple economy. In year 1 a hamburger costs $5.0 and a beer $2.0, whereas in year 2 a hamburger costs $10.0 and a beer $2.0. In year 1, 10 hamburgers are produced 1 and 10 beers are produced. In year 2, 6 hamburgers are produced and 8 beers are produced. The basket of goods defining the Consumer Price Index (CPI) is 10 hamburgers and 10 beers.

1. Calculate the nominal GDP in period 1 and period 2.
2. Calculate the real GDP in period 1 and period 2 when year 1 is treated as the base year.
3. Calculate the real GDP in period 1 and period 2 when year 2 is treated as the base year.
4. Calculate the growth rates of real GDP using a chain-weighting approach.
5. Calculate the rate of inflation using the implicit GDP price deflator when year 1 is treated as the base year.
6. What is the CPI in year 1 and year 2, when year 1 is treated as the base year?
7. Does the change in the CPI between year 1 and 2 overstate, understate or correctly state the change in the "cost of living"? Explain carefully.

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