Question

In the country of imagination, we have the following data for the GDP calculation (2015 is the base year):

year	Price of pizza	Quantity of pizza	Price of cheese	Quantity of cheese
2015	$10	250	$6	200
2016	$12	250	$9	250

1. Please compute the nominal GDP, real GDP and GDP deflator for 2016.
2. what is the percentage change in nominal GDP between 2015 and 2016?
3. What is the percentage change of the overall price (GDP deflator) between 2015 and 2016?

Answer 1

The base year is 2015.

Calculate the nominal GDP for 2016 -

Nominal GDP = [Quantity of pizza in 2016 * Price of pizza in 2016] + [Quantity of cheese in 2016 * Price of cheese in 2016]

Nominal GDP = [250 * $12] + [250 * $9] = $3,000 + $2,250 = $5,250

The nominal GDP for 2016 is $5,250

Calculate the real GDP for 2016 -

Real GDP = [Quantity of pizza in 2016 * Price of pizza in 2015] + [Quantity of cheese in 2016 * Price of cheese in 2015]

Real GDP = [250 * $10] + [250 * $6] = $2,500 + $1,500 = $4,000

The real GDP for 2016 is $4,000.

Calculate the GDP deflator for 2016 -

GDP deflator = [Nominal GDP/Real GDP] * 100

GDP deflator = [$5,250/$4,000] * 100 = 131.25

The GDP deflator for 2016 is 131.25

Calculate the nominal GDP for 2015 -

Nominal GDP = [Quantity of pizza in 2015 * Price of pizza in 2015] + [Quantity of cheese in 2015 * Price of cheese in 2015]

Nominal GDP = [250 * $10] + [200 * $6] = $2,500 + $1,200 = $3,700

The nominal GDP for 2015 was $3,700.

Calculate the percentage change in nominal GDP between 2015 and 2016 -

Percentage change = [(Nominal GDP in 2016 - Nominal GDP in 2015)/Nominal GDP in 2015] * 100

Percentage change = [($5,250 - $3,700)/$3,700] * 100 = 41.89%

The percentage change in nominal GDP between 2015 and 2016 is 41.89%

The base year is 2015.

The GDP deflator in base year is always 100.

So, the GDP deflator for 2015 is 100.

Calculate the percentage change in GDP deflator between 2015 and 2016 -

Percentage change = [(GDP deflator in 2016 - GDP deflator in 2015)/GDP deflator in 2015] * 100

Percentage change = [(131.25 - 100)/100] * 100 = 31.25%

Thus,

The percentage change of the overall price (GDP deflator) between 2015 and 2016 is 31.25%.