Question

Use the following table: 

 1. Compute nominal GDP in each year.

 2. Compute real GDP in each year using 2014 as the base year.

 3. Compute the GDP deflator in each year.

 4. Use GDP deflator to compute the inflation rate from 2014 to 2015 and from 2015 to 2016.

Answer 1

Question-1

As per the information given in the question

Goods	Price(P) of 2014 in $	Quantity (Q) of 2014	Expenditure in 2014 in $ = P x Q	Price(P) of 2015 in $	Quantity (Q) of 2015	Expenditure in 2015 in $ = P x Q	Price(P) of 2016 in $	Quantity (Q) of 2016	Expenditure in 2016 in $ = P x Q
A	25	1000	25000	28	1000	28000	30	1100	33000
B	100	200	20000	105	205	21525	120	220	26400
			45000			49525			59400

Nominal GDP in 2014 is the Cost of Market Basket in 2014 = ∑PxQ = $45000

Nominal GDP in 2015 is the Cost of Market Basket in 2015 = ∑PxQ = $49525

Nominal GDP in 2016 is the Cost of Market Basket in 2016 = ∑PxQ = $59000

Question-2

Goods	Price(P) of 2014 in $	Quantity (Q) of 2014	Expenditure in 2014 in $ = P x Q	Price(P) of 2014 in $	Quantity (Q) of 2015	Expenditure in 2015 in $ = P x Q	Price(P) of 2014 in $	Quantity (Q) of 2016	Expenditure in 2016 in $ = P x Q
A	25	1000	25000	25	1000	25000	25	1100	27500
B	100	200	20000	100	205	20500	100	220	22000
			45000			45500			49500

As 2014 is the base year, so in order to estimate the Real GDP the quantity of 2015 and 2016 has to be multiplied with the price of 2014

Real GDP in 2014 = $45000        (As 2014 is the base year its nominal GDP is equal with its real GDP)

Real GDP in 2015 = $45500

Real GDP in 2016 = $49500

Question -3

Year	Nominal GDP in $	Real GDP in $	GDP Deflator = (Nominal GDP /Real GDP)x100
2014	45000	45000	100
2015	49525	45500	108.85
2016	59400	49500	120

Question-4

Year	GDP Deflator
2014	100
2015	108.85
2016	120

Inflation Rate from 2014 to 2015 = {(GDP Deflator of 2015-GDP Deflator of 2014)/GDP Deflator of 2014}x100 = {(108.85-100)/100}x100=8.85%

Inflation Rate from 2015 to 2016 = {(GDP Deflator of 2016-GDP Deflator of 2015)/GDP Deflator of 2015}x100 = {(120-108.85)/108.85}x100=10.25%