The country of Old Jersey produces milk and butter,and it has published the following macroeconomic data,where quantities are in gallons and prices are dollars per gallon.
Between Year 1 and Year 2,the GDP deflator (based on Year 1 as a base year)rose

Question

The country of Old Jersey produces milk and butter,and it has published the following macroeconomic data,where quantities are in gallons and prices are dollars per gallon. 
Between Year 1 and Year 2,the GDP deflator (based on Year 1 as a base year)rose

Quizplus · Accepted Answer

To calculate the GDP deflator, we need to first find the nominal GDP in both year 1 and year 2. Nominal GDP is calculated by multiplying the quantity produced by the price. 
Nominal GDP (Year 1) = (400 * 2) + (800 * 4) = 3200
Nominal GDP (Year 2) = (500 * 3) + (1000 * 5) = 6500

Now we can calculate the GDP deflator, which is the ratio of nominal GDP in year 2 to nominal GDP in year 1, multiplied by 100. 
GDP deflator = (Nominal GDP Year 2/Nominal GDP Year 1) * 100
GDP deflator = (6500/3200) * 100
GDP deflator = 203.125

Therefore, the GDP deflator increased by 81.25%. Answer choice B is correct.

The Country of Old Jersey Produces Milk and Butter,and It