Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $1.50 in 2009. If 4 apples were produced in 2002 and 5 in 2009, whereas 3 oranges were produced in 2002 and 5 in 2009, then the GDP deflator in 2009, using a base year of 2002, was approximately:
A)1.5.
B)1.7.
C)1.9.
D)2.0.

Question

Quizplus · Accepted Answer

The GDP deflator is calculated as (Nominal GDP / Real GDP) x 100. Nominal GDP in 2009 is (5 apples x $1) + (5 oranges x $1.50) = $12.50. Real GDP in 2009, using 2002 prices, is (5 apples x $0.50) + (5 oranges x $1) = $7.50. The GDP deflator is ($12.50 / $7.50) x 100 = 1.67, approximately 1.5.

Assume That Apples Cost $0