Question

2. The table below provides the nominal and real GDP figures for the years 2016 and 2017. a) Calculate the GDP deflator for each year and the inflation rate for the year 2017. GDP Deflator Nom. GDP Real GDP 2016 2017 400 525 100 105 b) If the nominal interest rate on a certificate of deposit (CD) was 50% during 2017, what was the realized (ex-post) real interest earned by a depositor? [Hint real interest rate nominal interest rate -inflation] c) A barrel of oil was $40 in 2016 and $50 in 2017. In real terms, did the price of oil increase/decrease/stay the same?

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Answer 1

GDP Deflector = number GDP/Real GDP times 100 year 2016 GDP Deflator = 400/100 times 100 GDP deflator = 400 GDP deflator in 2016 is 400 year 2017 GDP deflator = 525/105 times 100 gdp deflator = 500 GDP Deflator in 2017 was 500 Inflation rate for the year 2017 Inflation rate = [GDP Deflator 2017 - GDP deflator 2016/GDP deflator 2016] times 100 Inflation rate = [500 - 400/400] times 100 Inflation rate = 2.5 % Inflation rate for the year 2017 was 7.5% \r\n Real interest rate = nominal interest rate - inflation rate Real interest rate = 50% - 2.5% Real interest rate = 25% Real interest earned by depositor was 25% price of a bonel of all in 2016 = $40 price of a bonel of cal in 2.17 = $50 The price of oil increased from $40 (i.e. 2016 prices) to $50 (i.e. , 2017 price) Increase in price (%) = $50 - $40/$40 times $40 Increase in