Homework SourseYear Price of Good 1 Quantity of Good 1 Price of Good 2 Quan
Year
Price of Good 1
Quantity of Good 1
Price of Good 2
Quantity of Good 2
2009
$20
50
$10
20
...
...
...
...
...
2014
$30
60
$20
30
2015
$33
70
$22
35
Consider the table above that shows prices and quantities of two goods produced in a hypothetical country. The base year is 2009. The GDP deflator in 2014 equals:
GDP deflator in 2014 = 150
GDP deflator in 2014 = 160
GDP deflator in 2014 = 170
GDP deflator in 2014 = 180
GDP deflator in 2014 = 190
None of the above.
| Year | Price of Good 1 | Quantity of Good 1 | Price of Good 2 | Quantity of Good 2 |
| 2009 | $20 | 50 | $10 | 20 |
| ... | ... | ... | ... | ... |
| 2014 | $30 | 60 | $20 | 30 |
| 2015 | $33 | 70 | $22 | 35 |
Solution
The value of GDP deflator in 2014 is calculated as 160.
GDP deflator is given by (Nominal GDP / Real GDP) * 100.Nominal GDP is the value of that year\'s output at current year prices.However the value of Real GDP is the value of that year\'s output at the base year prices.Hence for 2014 with 2009 as the base year GDP deflator is (60 * 30 + 30 * 20) / (60 * 20 + 30 * 10) * 100 = 160.
