Table 4.20 A very simple economy produces three goods: cameras, legal services, and books.The quantities produced and their corresponding prices for 2007 and 2017 are shown in the table above.
-Refer to Table 4.20.What is the GDP deflator in 2007 if 2017 is the base year?

Question

Table 4.20  A very simple economy produces three goods: cameras, legal services, and books.The quantities produced and their corresponding prices for 2007 and 2017 are shown in the table above.
-Refer to Table 4.20.What is the GDP deflator in 2007 if 2017 is the base year?

Quizplus · Accepted Answer

To calculate the GDP deflator in 2007 using 2017 as the base year, we need to divide the nominal GDP of 2007 by the real GDP of 2007, which is calculated using the prices of 2017. 
Nominal GDP in 2007 = P_2007 x Q_2007 
= (100 x 1) + (5000 x 10) + (20 x 100) 
= $50,100 
Real GDP in 2007 = P_2017 x Q_2007 
= (200 x 1) + (50 x 10) + (20 x 100) 
= $2,200 
GDP deflator in 2007 = (Nominal GDP/Real GDP) x 100 
= ($50,100/$2,200) x 100 
= 2277.27 
So, the answer is option C: 87.

Table 420 a Very Simple Economy Produces Three Goods: Cameras