3. Consider an economy where 1999 is the base year used for all calculations of price indices and constant-price aggregates. The price of the average good counted in GDP was 5% higher in 1997 than in 1999 and real GDP in 1997 was $64,800. In 1998 the rate of inflation was -10% (10% deflation). Nominal GDP was $61,425 in 1998 and $66,000 in 1999.
a. Calculate nominal GDP for 1997. Show your work.
b. Determine whether there was a recession in 1998 (assume that when an aggregate increases/decreases from one year to the next, it also increases/decreases in each quarter within that year). Show your work and explain clearly.
c. Find the rate of inflation for 1999. Show your work.