Question

In: Economics

Circle the letter that correspond the best suitable answer: The table below contains data for a...

Circle the letter that correspond the best suitable answer:

The table below contains data for a country, which produces only X and Y.

The base year is 2010.

Year

Price of X

Q of X

Price of Y

Q of Y

N GDP

R GDP

Def

2010

$3.00

90

$1.00

150

2011

$4.00

100

$2.00

180

2012

$5.00

120

$3.00

200

Refer to Table. In 2012,

a.

GDP deflator was 100.00

b.

GDP deflator was 158.33.

c.

GDP deflator was 214.28.

d.

GDP deflator was 285.71.

Solutions

Expert Solution

GDP deflator = Nominal GDP/Real GDP×100.

When GDP is measured in terms of current year price it is known as Nominal GDP. The current year price is the price prevailing in the year of manufacture. It is otherwise known as GDP at current prices. Nominal GDP= Current year quantity × current year price.

When GDP is calculated in terms of prices prevailing in some base year it is known as Real GDP. Base year is the year selected for comparison. Real GDP = Current year quantity × base year price. Real GDP is otherwise known as GDP at constant prices.

Nominal GDP in 2012

Year

Price

of X

Quantity

of X

Value

of X

Price of Y

Quantity of Y

Value of Y

Nominal GDP

2012

$5

120

$600

$3

200

$600

$1200

  

Real GDP in 2012

Year

Price

of X

Quantity

of X

Value

of X

Price of Y

Quantity of Y

Value of Y

Nominal GDP

2012

$3

120

$360

$1

200

$200

$560

  

GDP deflator in 2012= $1200/$560×100=214.28

Answer: c. GDP deflator was 214.28


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