Question I
Nominal GDP is calculated at current years' prices.
Calculate the nominal GDP for 2010 -
Nominal GDP = [Boxes of chocolates in 2010 * Price of chocolates in 2010] + [Quantity of watches in 2010 * Price of watches in 2010]
Nominal GDP = [100 * $5] + [15 * $60]
Nominal GDP = $500 + $900 = $1,400
The nominal GDP for 2010 is $1,400
Real GDP is calculated at base years' prices.
The base year is 2009.
Calculate the real GDP for 2010 -
Real GDP = [Boxes of chocolates in 2010 * Price of chocolates in 2009] + [Quantity of watches in 2010 * Price of watches in 2009]
Real GDP = [100 * $5] + [15 * $50]
Real GDP = $500 + $750 = $1,250
The real GDP for 2010 is $1,250
Calculate the GDP deflator in 2010 -
GDP deflator = [Nominal GDP/Real GDP] * 100
GDP deflator = [1,400/1,250] * 100
GDP deflator = 112
The GDP deflator in 2010 is 112.
The GDP deflator in base year is always 100.
The base year is 2009.
So, the GDP deflator in 2009 is 100.
Calculate the inflation rate for 2010 -
Inflation rate = [(GDP deflator in 2010 - GDP deflator in 2009)/GDP deflator in 2009] * 100
Inflation rate = [(112 - 100)/100] * 100
Inflation rate = 12%
The inflation rate for 2010 is 12%.
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