Question

Based on the table below, calculate nominal GDP, real GDP, the GDP deflator, and the inflation rate in each year and fill in the missing parts of the table. Use 2014 as the base year. 

Instructions: Round nominal and real GDP values to two decimal places. Round GDP deflator and inflation rate values to the nearest whole number.

Answer 1

Nominal GDP = Sum of price of a good in the current year * Quantity of good in the current year

Real GDP = Sum of price of a good in the base year * quantity if good in the current year

GDP Deflator = Nominal GDP/Real GDP * 100

Inflation = (GDP Deflator of the current year - GDP Deflator of previous year)/ GDP Deflator of the previous year * 100

Now for yr 2014

Nominal GDP = 600*1.50 + 800 * 6.0 = 5700

Real GDP = 600*1.50 + 800 * 6.0 = 5700

GDP Deflator = 5700/5700 * 100 = 100

Now for yr 2015

Nominal GDP = 700*1.0 + 950 * 7.75 = 8062.50

Real GDP = 700*1.50 + 950 * 6.0 = 6750

GDP Deflator = 8062.50/6750 * 100 = 119.44 ~ 119

inflation = (119 - 100) / 100 * 100 = 19%

Now for yr 2016

Nominal GDP = 700*1.5 + 1200 * 8.50 = 11250

Real GDP = 700*1.50 + 1200 * 6.0 = 8250

GDP Deflator = 11250/8250 * 100 = 136.36 ~ 136

inflation = (136 - 119) / 119 * 100 = 14.28% ~ 14%