Table 8-18
A very simple economy produces three goods: cameras,legal services,and books.The quantities produced and their corresponding prices for 2011 and 2016 are shown in the table above.
-Refer to Table 8-18.What is the GDP deflator in 2016 if 2016 is the base year?

Question

Table 8-18
  A very simple economy produces three goods: cameras,legal services,and books.The quantities produced and their corresponding prices for 2011 and 2016 are shown in the table above.
-Refer to Table 8-18.What is the GDP deflator in 2016 if 2016 is the base year?

Quizplus · Accepted Answer

To calculate the GDP deflator, we need to find the nominal GDP and the real GDP. Nominal GDP is found by multiplying the quantities produced in each year by their corresponding prices in that year and summing the values. Real GDP is found by multiplying the quantities produced in each year by their base year prices and summing the values.

Using 2016 as the base year:
Nominal GDP in 2011 = (400*$80) + (800*$200) + (500*$20) = $164,000
Real GDP in 2011 = (400*$100) + (800*$200) + (500*$25) = $194,000
GDP deflator in 2011 = (Nominal GDP/Real GDP) * 100 = (164,000/194,000) * 100 = 84.53

Nominal GDP in 2016 = (500*$100) + (1200*$250) + (700*$30) = $465,000
Real GDP in 2016 = (500*$100) + (1200*$200) + (700*$25) = $425,000
GDP deflator in 2016 = (Nominal GDP/Real GDP) * 100 = (465,000/425,000) * 100 = 109.41

Therefore, the GDP deflator in 2016 using 2016 as the base year is 100, as expected.

Table 8-18 a Very Simple Economy Produces Three Goods: Cameras,legal