Table 19-6

A very simple economy produces three goods: cameras, legal services, and books. The quantities produced and their corresponding prices for 2008 and 2011 are shown in the table above.
-Refer to Table 19-6.What is the GDP deflator in 2008 if 2011 is the base year?

Question

Table 19-6
  
A very simple economy produces three goods: cameras, legal services, and books. The quantities produced and their corresponding prices for 2008 and 2011 are shown in the table above.
-Refer to Table 19-6.What is the GDP deflator in 2008 if 2011 is the base year?

Quizplus · Accepted Answer

To calculate the GDP deflator for 2008 using 2011 as the base year, we need to find the nominal GDP and the real GDP for both years.

In 2011, nominal GDP = (30 x 10) + (20 x 50) + (60 x 5) = 300 + 1000 + 300 = 1600

In 2011, real GDP = (30 x 10) + (20 x 50) + (60 x 5) = 300 + 1000 + 300 = 1600

Therefore, the GDP deflator for 2011 (the base year) is 100, since nominal GDP = real GDP.

In 2008, nominal GDP = (20 x 8) + (10 x 40) + (30 x 4) = 160 + 400 + 120 = 680

To find the real GDP in 2008, we need to use the prices from the base year (2011):

Real GDP 2008 = (20 x 10) + (10 x 50) + (30 x 5) = 200 + 500 + 150 = 850

Using the formula for the GDP deflator:

GDP deflator = (nominal GDP / real GDP) x 100

GDP deflator 2008 = (680 / 850) x 100 = 80

Therefore, the GDP deflator in 2008 if 2011 is the base year is 80.

Option B is correct.

Table 19-6 A Very Simple Economy Produces Three Goods: Cameras, Legal Services