Question

A Country Economic Activities were recorded as follows:

	2014		2015
	Quantity	Price	Quantity	Price
PC	100	1000	200	1400
Rice	200000	2	300000	2.5

a. Find 2014 and2015 nominal GDP？

b. Find 2014 and 2015 real GDP (based year=2014)？

c. Find the GDP deflator (based year=2014) from 2014 to 2015？

d. Based on CPI calculation (PC & Rice are in the basket), find the inflation rate from

2014 to2015 (basket year=2014)？

Answer 1

Solution:-

(a) Calculate Nominal GDP:-

Nominal GDP (2014) = Quantity 2014 * Price 2014

                                          = (100 * 1000) + (200000 * 2)

                                          = 100000 + 400000

                                          = 500,000

Nominal GDP (2015) = Quantity 2015 * Price 2015

                                          = (200 * 1400) + (300000 * 2.5)

                                          = 280000 + 750000

                                          = 10,30,000

(b) Calculate Real GDP:-

Real GDP = Sum of price of a good in the base year * quantity if good in the current year                                                                             

Real GDP (2014) = (100 * 1000) + (200000 * 2)

                             = 100,000 + 400,000

                             = 500,000

Real GDP (2015) = (200 * 1000) + (300000 * 2)

                             = 200,000 + 600,000

                             = 800,000

(c) Calculate GDP Deflator:-

GDP Deflator = Nominal GDP/Real GDP * 100

GDP Deflator (2014) = 500,000 / 500,000 * 100

                                         = 100

GDP Deflator (2015) = 10,30,000 / 800,000 * 100

                                         = 128.75

(d) Calculate Inflation:-

Inflation = (GDP Deflator of the current year - GDP Deflator of previous year)/ GDP Deflator of the previous year * 100

= (128.75 - 100) / 100 * 100

= 28.75