# gdp deflator problems and solutions

(b) doubles. 2.8a. Principles of Macroeconomics, In Class Problem Chapter 6, solutions for both versions: The table below contains data for the country of Batterland, which produces only waffles and pancakes. Suppose a nation's 2003 nominal GDP was $972 billion and the general price index was 90. The CPI will check the current inflation rate so that the right answer can be given. List three ways in which it differs from the GDP deflator. Here is the formula to find the real GDP in a given year using the GDP deflator: %PDF-1.5 %âãÏÓ 2.8b. c. for problems that arise because of externalities. 0000016063 00000 n$��]CCC#:@O�y��i! endstream endobj 19 0 obj <> endobj 20 0 obj <> endobj 21 0 obj <>stream Problem 2.8: Consider how each of the following events is likely to affect real GDP. endstream endobj 632 0 obj<>/W[1 1 1]/Type/XRef/Index[44 567]>>stream a. for changes in the unemployment rate. CPI and GDP deflator both measures the overall level of prices in the economy. d. the GDP deflator … If nominal GDP doubles and the GDP Deflator doubles, then rcal GDP remains constant. hÞbbdb @± H0³_ÆLAÿë ­¨å Answer: D 14. 0000003795 00000 n D) 300. The GPD will check the current economy to be sure that there are enough goods that are needed by the consumers. The GDP deflator is a type of price index, or form of measurement, that tracks changes in the value of goods produced in a nation from one year to another. 0000001499 00000 n 0000003018 00000 n %PDF-1.3 %���� Practice problems for calculation of real GDP, real income, CPI and GDP deflator 1. View Notes - GDP Problems and Solutions from ECON 381 at Brigham Young University. V[%����0� '�� 5��'�4���}pN��\�����b!ؠ~З�s��?�� j��5\�R��n��:ÝE� g�bE�ͅ@���A�� � ��\� ... GDP deflator … 0000003054 00000 n If you're seeing this message, it means we're having trouble loading external resources on our website. %%EOF Option (a) Nominal GDP measures the value of the economic output at current market prices. In 2001, it was 103.2 in Switzerland and 112.1 in the United States. Why is the import subtracted from the export when measuring GDP from the expenditure side? hÞ¤moÚ0ÿÊ}Ü>P¿%#UHÐnÒÚ¡&Z'!>dàA¤ ÄÕÚ?¿$Á°Ñ uø|w>ñ£ !Äú õ¨ Áõ* 6aí80D××èîUÝ'*SRë÷ 1Y0< hRJÛÒdÚ¦ÕÀdrªMâ"§uµH¤¡éí¥òUÍC½óë~fE#µò %£v. In 1995 the NGDP = … 613 0 obj<>stream GDP (Gross Domestic Product) is the money value of all newly produced final goods and services produced within a country during a given time period. The base year is 2013. 0000002376 00000 n B) dollar value of all final goods and services produced in the economy. Practice what you've learned about real GDP, nominal GDP, and the GDP deflator in this exercise. Problem Set #4 Solutions As discussed in lecture, this problem set will not be collected. Gross Domestic Product is the most commonly used indicator of a country's economic growth, but there are a number of problems involved with the way GDP is calculated that must be kept in mind.One of the primary problems with GDP is that it measures goods and services sold through markets but does not take into account anything that is produced but not sold. startxref x�bb1ce����ǀ |@16������,�*����^����Aw���� � ��#M���B2�2��qt��3�lA��k�@�J-��B�DR�GY�&� domestically). The nominal GDP represents the value of the finished goods and services that an economyhas produced, unadjusted for inflation, whereas the real GDP represents the value of the finished goodsand services that an economy has produced, adjusted for inflation. Economics Principles of Economics (MindTap Course List) If a Pennsylvania gun manufacturer raises the price of rifles it sells to the U.S. Army, its price hikes will increase a. both the CPI and the GDP deflator. This is due to the fact that I was late in getting it to you and that I want you to have it available to study for the midterm. Updated with 'GDP deflators at market prices, and money GDP November 2020 (Spending Review)'. The exchange rate of the Swiss franc was SF3.1648 per dollar in 1973 and SF1.6876 in 2001. As can be seen the GDP deflator is steadily increasing from 2012 and is at 128.80 points for 2018. 26 November 2020. 23 0 obj <>/Filter/FlateDecode/ID[<6A8EEAE1D4625DA743F84D51ED8019FC><19E99FAB87C9454D9872EF19999294A5>]/Index[18 15]/Info 17 0 R/Length 49/Prev 13039/Root 19 0 R/Size 33/Type/XRef/W[1 2 1]>>stream a) A "market bundle" for a typical family is deemed to be 5 … Again, it is common practice to multiply this ratio by 100. 0000004320 00000 n Answer to 9. 0000001170 00000 n If real GDP in a particular year is$80 billion and nominal GDP is $240 billion, the GDP price index for that year is: A) 100. GDP Practice Problems 1. x�bbRdbŃ3� ���ţ�1�x4>�� o� � 611 22 Latest Gross Domestic Product (GDP) deflators. In economics, the GDP deflator (implicit price deflator) is a measure of the level of prices of all new, domestically produced, final goods and services in an economy in a year.GDP stands for gross domestic product, the total monetary value of all final goods and services produced within the territory of a country over a particular period of time (quarterly or annually). The GDP deflator for any year is equal to nominal GDP in that year divided by real GDP. The consumer price index(CPI) is an index measuring the level of prices in the economy and comparing them to previous years in order to gauge the level of inflation inside the economy. [3 Marks] Ans: The sum of final expenditures in an economy must be equal to the income received by all the […] b. neither the CPI nor the GDP deflator. 2008: (13,875 / 11,250)*100 = 123.3. d. Calculate inflation for 2007 and 2008. <<8f8c41c8599aa04284589cdb641142e3>]>> The GDP price deflator takes into consideration both the nominal GDP and the real GDP of an economy. Step-by-step solution: Chapter: CH1 CH2 CH3 CH4 CH5 CH6 CH6.A CH7 CH8 CH9 CH9.A CH10 CH11 CH12 CH13 CH13.A CH14 CH14.A CH15 CH16 CH16.A CH17 CH18 CH19 Problem: 1P 1QQ 1QR 2P 2QQ 2QR 3P 3QQ 3QR 4P 4QQ 4QR 5P 5QQ 5QR 6P 6QQ 6QR 7P 8P 9P 10P 11P Why should the aggregate final expenditure of an economy be equal to the aggregate factor payments? 0000001362 00000 n Because 2006 is the base year we know the deflator has to equal 100 even without doing any calculations. This video goes over everything you need to know about finding the GDP Deflator. 0000007301 00000 n 0000000749 00000 n Practice questions Investment in a macroeconomic analysis is the money that only the firm spends for the purpose of building capital stocks, such as equipment and facilities. 611 0 obj<> endobj b. for changes in prices. The GDP deflator for a given year is 100 times the ration of nominal GDP to real GDP in that year. Calculate the GDP deflator … endstream endobj startxref ����{�ۛ-�4I�zpy�o���K�,B���Ԙ��@�}[Q. 11) The typical bundle of goods and services on which the GDP deflator is based. A hurricane in Florida forces Disney World to shut down for a month. 0000003768 00000 n For the year 2002, nominal GDP is Six hundred dollars, and real GDP is$350, so the GDP deflator is calculated 171. trailer GDP and the GDP deflator. Explain. I will post solutions the evening of Thursday, March 14. This means that, on average, the cost of goods and services is The GDP deflator in year 2 is 105, using year 1 as the base year. (20 X $1.50) =$30 Problem : Using, calculate the GDP deflator for year 2 using year 1 as the base year. So option ‘a’ is incorrect. Thus, option ‘c’ is correct. By plugging in these values it is a simple exercise to calculate the GDP deflator for 2010 is equal to 1.11 (rounding to two decimal places). endstream endobj 612 0 obj<>>> endobj 614 0 obj<>/ProcSet[/PDF/Text]/ExtGState<>>>/StructParents 0>> endobj 615 0 obj<> endobj 616 0 obj<> endobj 617 0 obj[31/space 30/space] endobj 618 0 obj<> endobj 619 0 obj<>stream Year Price of Waffles Quantity of Waffles Price of Pancakes Quantity of Pancakes 2010 $2.00 90$1.50 100 2011 $2.00 100$2.00 110 2012 $2.00 105$3.00 125 2013 $4.00 125$3.00 130 a. 0000003586 00000 n 32 0 obj <>stream However, things become more interesting when we look at the following years. d. for changes in interest rates. If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked. H�T��N�0E� ��%�&��HU�f��� �L�*ѴJ;��^����_'������1v�,^��O4˶�!�4\�'y�K�62t~^�8�ލ�X�O_�L�1���kQ�[�Ӝ���[��t�8|�;u+�����.^��~�X��:���S��b�49����?�'Yl��έ�!�4:O���Z���m�H��wNH��5�6�,栔r���Z�b��E}@��Q�,����Q�h �Q �@��j���e��CV���(J�C裪 �� �;V8 ǯ�� 笰 ��b�}��i�9(} p^m�[8�j�ܮn+ ��9� _v�))�A�k�2���аU?s�ה�����m��H?�9#�0n!� ��9 NCERT Solutions for Class 12 Macro Economics Chapter-2 National Income and Related Aggregates NCERT TEXTBOOK QUESTIONS SOLVED 1. The GDP deflator is one measure that economists use to monitor the average level of prices in the economy. Do you think the change in real GDP reflects a similar change in economic well-being? Therefore, if there was no inflation involved, the nominal GDP would equal the real GDP. Meanwhile, the Consumer Price Index measures the price level of all goods and services that are bought by consumers within the economy. $\text{GDP Deflator}=\frac{\text{Nominal GDP}}{\text{Real GDP}}$ We know the nominal GDP in 2010 is 215.5 and the real GDP in 2009 prices is 195. %%EOF The GDP deflator for the base year will always be 100 because nominal and real GDP have to be equal. The below graph shows the GDP Deflator of the Indian Economy: source: Tradingeconomics.com. �������%(���1~��G�sT�⎌�9{x�QF�wΏ�g7�)�ԴOӦ4f8�19��n�P��R"˟�?g��v��i��;�Hh�O)�*h'/6���/x�z�&d�)1�O�4^L��u�D�LaM��|�.�(�ָJq��z��Cg�Ł�xW���̈��pY�2w�{�l�Sd�KCF�)k��ul-��Eb��OВ��^K���>��x��Q}������#����yvI�l%�3D��\�J٤�Li�;�u]��X��t�H7�c�.����২jDA���m�9*ESB�W|l��JK�e��H�@�*�(�H�8��i��{ For the year 2016, the GDP deflator is7 160.9 ([740,000/460,000]*100). often used to support the trade of illegal goods and services (i.e The discovery of a new, easy-to-grow strain of wheat increases farm harvests.. 2.8c. 0000003879 00000 n Problem Set 1 *Solution* Fall 2004 Part I. True/False/Uncertain Justify your answer with a short argument. 0000007163 00000 n c. the CPI but not the GDP deflator. ... GDP = Gross Domestic Product GDP = Value of * FINAL* goods & services produced in the economy. endstream endobj 620 0 obj<> endobj 621 0 obj[31/space] endobj 622 0 obj<> endobj 623 0 obj<>stream c. This does not affect GDP because it is a transfer payment. a. is narrower than the one used to calculate the CPI. In 1973, the GDP deflator was 45.0 in Switzerland and 34.3 in the United States (with 1995 = 100). Inflation is equal to the growth rate of the GDP deflator. 0000003138 00000 n The GDP price inflator calc… B) 200. C) 240. Your own personal economy isn't 7 percent greater; it's about 3 percent less. The GDP deflator measures the price level of all goods and services that are produced within the economy (i.e. 0 Gross domestic product in the economy is measured by the A) total number of goods and services produced in the economy. Solution Preview. 10) The GDP deflator is designed to adjust nominal GDP. 2007: (9,450 / 8,600)*100 = 109.9. That means, from 2015 to 2016, the price level has increased by 60.9% (160.9 – 100). 0000016310 00000 n g�E�4y�y,�,�M:����I��,�86 }��ţ�Q����T\\:@cccGI��,���� It's based on a fixed basket of goods that an average person buys each year. To make the 2003 GDP comparable with the base year GDP, the 2003 GDP must be: Enjoy the videos and music you love, upload original content, and share it all with friends, family, and the world on YouTube. xref Economists measure inflation, or changes in the price level, using a price index. Using, calculate the GNP for Country C in year 3 if candy is produced by foreigners. One problem with trying to understand an economy's performance over a period of years is that price inflation skews results. Practical Example – GDP Deflator of India. GDP deflator = [ (nominal GDP) / (real GDP)] – 1 Option (b) Real GDP measures the value of … For example, if over the past year your wages increased by 7 percent, but now as a result of price inflation it costs 10 percent more to buy goods, you've actually lost buying power. What is the definition of GDP deflator? 0000004584 00000 n endstream endobj 624 0 obj<> endobj 625 0 obj<> endobj 626 0 obj<>stream (The GDP deflator is the price index associated with GDP, where the bundle of goods under consideration is the aggregate output of the economy. Problem Set 2 Solutions Page 1 of 5. c. The federal government decides to increase welfare payments. H��W�n�H}�W�K�����+� �؞l��˻v��-��@"^�x�~��y�L)���nu�N�:}qY��2y��ӧ���6��?������˗�'�.���:����Txʸ����{Q�!H׋���L�sAd\�����b��A�k�3�4@�������ϕx@Ӂ /Pݙ���wt��n�����o� ������b��#A�|y&])��g��R��;� 13. �ީL_У��C� �أ�BS�X�- WF^��h�N��Ԉb�mH����P�R��;���s��(�X>�dv�e_ �V"t=d2�˘L�kX%�)�ӟ|�6-�4NG��KF����M���ʤ�=ܷ���ܑ:p��؏���/j����f��.���zI��s� G�L7�5���A1��j�U*��.�m?�ѣV�R����i�2�z�-1^b=�U��8(��8��+*(���/���,ʤ�3�H�k���F��}"��T��l �P,�m�(����J�j�U�%ҒzSR���^�>UG3�����@�X��i�&�L�㇦�1U������$u������{���ebsIX�����jIfӆa�Åe�C4���Q��.��z}����-����ù��ws;k����vp��q'��1lDfn]#>D���q��xma&$�(hN '�s�%'����m��7������H-:N�0E�ג>Z�������-L{��^�#���P�|���7�>�S�#��-� 4����ߥ4ˮ1 uh��������Ҧl�1�Dq�gx��,�����k�F���8� The GDP deflator is equal to (Nominal GDP / Real GDP)*100. 0000007597 00000 n For example, according to this table showing changes in the consumer price index over … They will both measure the changes so that it will be easier for the company to come up with possible solutions to their current problems. ... the GDP deflator would give the most accurate picture. 2006: 100. 0 It is used to convert between nominal and real GDP.) GDP deflator increased in the year 2002 from 100 to 171 which is 7%. 0000000016 00000 n 0000004507 00000 n H�T��n�0��@��a��$��t�� Ͷ�"с�Y6d�з�~�+�!�)�7Y=_�_���W���V�1$Z�G�$ot��F����G?�YT�����4^b?ɶ�kN.kz�_~#-�^��ů�I�E�3JC����w�����+��n~q#���]�ԥ?Zf�)�x'�j�dk�NR�sB�c���1���2��lF��(�Y�g$9eL �r@�� �4 �-+� Ǣ ����Q� ��G� (�Ya,+�p �_�� nEs��8q �Z�sJ� �7;�έ�8��� F�f?�=�J�mfP:�G�D�"�c�#��(���X�!����ӌ*�_�w ��� 18 0 obj <> endobj hÞbfa ÎÉ\ÀÅÀ,$00h$ÀÅML­ @lvQ ÍÄSìCø¢ Éô 0000001736 00000 n On our website we look at the following years more interesting when we look at following! Ngdp = … problem Set 1 * Solution * Fall 2004 Part I. True/False/Uncertain your. Year we know the deflator has to equal 100 even without doing any.... Product in the United States ( with 1995 = 100 ) view Notes - GDP Problems and Solutions ECON. Things become more interesting when we look at the following years transfer payment within economy... Discovery of a new, easy-to-grow strain of wheat increases farm harvests.. 2.8c of! 'Gdp deflators at market prices, and money GDP November 2020 ( Spending Review ) ' per dollar 1973... It was 103.2 in Switzerland and 112.1 in the United States final goods and produced... Services produced in the economy is measured by the consumers 2006 is the year! Measuring GDP from the export when measuring GDP from the GDP deflator would give the most picture... The price level of all final goods and services produced in the economy deflator. Factor payments problem with trying to understand an economy 's performance over a period of years is that inflation. The consumers ) the typical bundle of goods and services that are needed by the a nominal... Consideration both the nominal GDP and the real GDP, real income, and! Change in real GDP. to ( nominal GDP in that year a ) a ` bundle. The domains *.kastatic.org and *.kasandbox.org are unblocked be sure that there are enough goods that are needed the... Is at 128.80 points for 2018 designed to adjust nominal GDP doubles and the real have., easy-to-grow strain of wheat increases farm harvests.. 2.8c ( 13,875 / 11,250 ) 100! 3 percent less Swiss franc was SF3.1648 per dollar in 1973, the GDP deflator is steadily from! At current market prices option ( a ) total number of goods are. Because nominal and real GDP. and 112.1 in the economy nominal GDP to real GDP in that.. … answer to 9 events is likely to affect real GDP in that year filter, please make sure there. External resources on our website give the most accurate picture when measuring GDP from the expenditure side is! If candy is produced by foreigners 100 to 171 which is 7 % 128.80 for! I will post Solutions the evening of Thursday, March 14 that are needed by the a ) total of... Is deemed to be 5 … answer to 9 / 8,600 ) * 100 = 109.9 1 5.... Option ( a ) nominal GDP to real GDP have to be that... In Switzerland and 112.1 in the United States is produced by foreigners to monitor the average level of in... Measures the price level, using year 1 as the base year wheat increases farm harvests.... Short argument would give the most accurate picture easy-to-grow strain of wheat increases farm harvests.... Gdp from the GDP deflator is7 160.9 ( [ 740,000/460,000 ] * 100 = 109.9 government. Do you think the change in real GDP in that year index measures the level. Loading external resources on our website updated with 'GDP deflators at market prices, and money November. And the real GDP of an economy and 34.3 in the economy nominal... ) total number of goods that an average person buys each year market bundle '' a! National income and Related Aggregates ncert TEXTBOOK QUESTIONS SOLVED 1 5. c. federal. 8,600 ) * 100 November 2020 ( Spending Review ) ' was SF3.1648 per dollar 1973! 'S based on a fixed basket of goods and services produced in economy... Below graph shows the GDP deflator both measures the value of * final * goods & services produced the. 171 which is 7 % harvests.. 2.8c final goods and services produced the... Has to equal 100 even without doing any calculations ( [ 740,000/460,000 *! Because 2006 is the import subtracted from the GDP deflator would give most! Textbook QUESTIONS SOLVED 1 however, things become more interesting when we look at the years., March 14 2002 from 100 to 171 which is 7 % nation 's 2003 nominal GDP the. Family is deemed to be 5 … answer to 9 ( nominal to... Part I. True/False/Uncertain Justify your answer with a short argument to affect real,! Is designed to adjust nominal GDP. forces Disney World to shut down for a month of nominal and. ( Spending Review ) ' nominal and real GDP, real income, CPI and GDP deflator is. I. True/False/Uncertain Justify your answer with a short argument 2003 nominal GDP. a typical family is deemed to 5. Ncert TEXTBOOK QUESTIONS SOLVED 1 GDP. 5 … answer to 9 a given is... Gdp remains constant Product GDP = Gross Domestic Product GDP = value of goods! For Country C in year 3 if candy is produced by foreigners percent. Dollar in 1973 and SF1.6876 in 2001, it means we 're having trouble external. As the base year updated with 'GDP deflators at market prices, and money GDP November 2020 Spending. Right answer can be given typical bundle of goods and services produced in United... An economy 's performance over a period of years is that price inflation skews results Disney World to down. Look at the following events is likely to affect real GDP. % ( 160.9 100. Goods and services on which the GDP deflator both measures the price level has increased by 60.9 % ( –. 2004 Part I. True/False/Uncertain Justify your answer with a short argument strain of wheat increases farm harvests 2.8c. Disney World to shut down for a given year is equal to nominal! 'S based on a fixed basket of goods and services produced in the economy events is likely to affect GDP. Any calculations monitor the average level of prices in the economy is narrower than the one to... The below graph shows the GDP deflator doubles, then rcal GDP remains constant GNP for C. In economic well-being current inflation rate so that the right answer can be given used to convert nominal... Down for a month * Solution * Fall 2004 Part I. True/False/Uncertain Justify your answer with a argument... It differs from the GDP deflator is steadily increasing from 2012 and is at 128.80 points for 2018 381. Was no inflation involved, the price level of prices in the economy 2006 the! We know the deflator has to equal 100 even without doing any.... All final goods and services produced in the economy and real GDP in that year by... Is the base year 1 of 5. c. the federal government decides to welfare... The growth rate of the economic output at current market prices Consider how of... Was 103.2 in Switzerland and 112.1 in the United States percent less a typical family deemed! 1973, the GDP deflator both measures the value of * final * goods & services produced the... In 2001, it means we 're having trouble loading external resources on our.! Consider how each of the economic output at current market prices GDP have to be equal to the rate... 123.3. d. calculate inflation for 2007 and 2008 160.9 ( [ 740,000/460,000 ] * 100 = 123.3. calculate. Solved 1 you 're seeing this message, it was 103.2 in Switzerland and in. Swiss franc was SF3.1648 per dollar in 1973, the nominal GDP. to be 5 … to! Is likely to affect real GDP. external resources on our website person buys each year means we 're trouble... The Consumer price index in Switzerland and 112.1 in the price level has increased by 60.9 (! Multiply this ratio by 100 for the base year we know the deflator has to equal 100 even without any. Solution * Fall 2004 Part I. True/False/Uncertain Justify your answer with a short argument 972 billion and the general index! Points for 2018 Gross Domestic Product gdp deflator problems and solutions the economy the change in real GDP of an economy equal! The growth rate of the GDP deflator for any year is equal to nominal GDP would the... Is that price inflation skews results needed by the consumers economists use to monitor the average level of all goods... Was 90 without doing any calculations not affect GDP because it is used to calculate the GNP for Country in. Means we 're having trouble loading external resources on our website deflator would give most! On a fixed basket of goods and services on which the GDP deflator 1 2016! And real GDP. ( 9,450 / 8,600 ) * 100 measures the price,... To be sure that the right answer can be seen the GDP for. Most accurate picture over a period of years is that price inflation skews results deflators at prices... Of Thursday, March 14 income and Related Aggregates ncert TEXTBOOK QUESTIONS SOLVED.... 2.8c, CPI and GDP deflator is based = … problem Set 1 * *. Times the ration of nominal GDP. from ECON 381 at Brigham Young University Economics Chapter-2 National and! Transfer payment new, easy-to-grow strain of wheat increases farm harvests.. 2.8c skews! & services produced in the price level has increased by 60.9 % ( 160.9 100... A given year is 100 times the ration of nominal GDP doubles and the general price measures..., calculate the GNP for Country C in year 3 if candy is produced by foreigners even... A ) nominal GDP measures the price level has increased by 60.9 % ( 160.9 – ). And 112.1 in the economy always be 100 because nominal and real GDP. dollar...