Scenario: A country produces only one good. It produced 5,000 units of the good during Year 1 and 6,000 units of the good in Year 2. The price of each unit of the good in Year 1 was $280 and it was $320 in Year 2. Suppose Year 1 is taken as the base year for the calculation of GDP.
-Refer to the scenario above.The GDP deflator for Year 2 is ________.
A) 114.3
B) 0.14
C) 240
D) 87.5

Question

Quizplus · Accepted Answer

The GDP deflator is calculated as follows:

GDP Deflator = (Nominal GDP / Real GDP) x 100

Nominal GDP for Year 2 = 6,000 units x $320 = $1,920,000
Real GDP for Year 2 = 6,000 units x $280 (Year 1 price) = $1,680,000

Therefore, the GDP deflator for Year 2 is:

GDP Deflator = ($1,920,000 / $1,680,000) x 100 = 114.3

Scenario: a Country Produces Only One Good