Question

Assume that is produced only two products; Coffee bean and plastic where are the price and quantity produced are:

Year	Coffee bean	Plastic
2018 (base year)	P= 10    Q= 1,000	P= 5     Q= 2,000
2019	P= 10    Q= 1,100	P= 5      Q= 2,100
2020	P= 12    Q= 900	P= 6      Q= 1,900

 

Calculate GDP deflator for the years 2018, 2019 and 2020.  Also, calculate the Nominal and real GDP growth on 2019 & 2020, compare between them by explaining why they are different.  Calculate the 2019 & 2020 inflation rates.

Answer 1

Formulas used in the table are the following:

Real GDP = Base Year Price*Output

Nominal GDP = Current Year Price*Output

GDP Deflator = Nominal GDP/Real GDP

Inflation Rate = (Current Year GDP Deflator/Previous Year GDP Deflator) – 1:

Real GDP Growth Rate = (Current Year Real GDP/Previous Year Real GDP) – 1

Nominal GDP Growth Rate indicates the % increase in the Nominal GDP:

Nominal GDP Growth Rate = (Current Year Nominal GDP/Previous Year Nominal GDP) – 1

 

Year	Coffee bean	Plastic	Real GDP	Nominal GDP	GDP Deflator	Inflation Rates	Real GDP Growth Rate	Nominal GDP Growth Rate
2018 (base year)	P= 10  Q= 1,000	P= 5  Q= 2,000	20000	20000	1
2019	P= 10  Q= 1,100	P= 5  Q= 2,100	21500	21500	1	0%	7.5%	7.5%
2020	P= 12  Q= 900	P= 6  Q= 1,900	18500	22200	1.2	20%	-13.95%	3.26%