Question

Example 1. In an economy, real GDP (base year =1996) is $125 billion and nominal GDP is $150 billion. Calculate the GDP deflator

Answer 1

To calculate the GDP deflator, divide the nominal GDP by the real GDP and multiply by 100.

Step-by-step explanation:

To calculate the GDP deflator, we can use the formula:

GDP deflator = (Nominal GDP / Real GDP) * 100

In this case, the real GDP is given as $125 billion and the nominal GDP is given as $150 billion. Plugging these values into the formula, we have: (150 / 125) * 100, which equals 120. Therefore, the GDP deflator is 120.