Suppose GDP consists of wheat and rice.In 2005,20 bushels of wheat are sold at $4 per bushel,and 10 bushels of rice are sold at $2 per bushel.In 2004,the price of wheat was $2 per bushel and the price of rice was $1 per bushel.Using 2004 as the base year,it follows that,for 2005,

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Quizplus · Accepted Answer

Nominal GDP in 2005 = (20 x $4) + (10 x $2) = $80 + $20 = $100
Nominal GDP in 2004 = (20 x $2) + (10 x $1) = $40 + $10 = $50

Real GDP in 2005 = (20 x $2) + (10 x $1) = $40 + $10 = $50 (using 2004 as base year)

GDP deflator in 2005 = (Nominal GDP in 2005 / Real GDP in 2005) x 100
= ($100 / $50) x 100
= 200

Suppose GDP Consists of Wheat and Rice