Q 12. Using the following information, calculate and analyse the value of Gross Domestic Product (GDP)deflator: [2]Year 2014-15 2016-17Nominal GDP 6.5 9Real GDP 6.5 7.
Question
Q 12. Using the following information, calculate and analyse the value of Gross Domestic Product (GDP)deflator: [2]Year 2014-15 2016-17Nominal GDP 6.5 9Real GDP 6.5 7.
Solution
To calculate the GDP deflator, we need to follow these steps:
Step 1: Calculate the GDP deflator formula: GDP deflator = (Nominal GDP / Real GDP) * 100
Step 2: Plug in the values for the given years: For the year 2014-15: Nominal GDP = 6.5 Real GDP = 6
For the year 2016-17: Nominal GDP = 9 Real GDP = 7
Step 3: Calculate the GDP deflator for each year: For 2014-15: GDP deflator = (6.5 / 6) * 100 = 108.33
For 2016-17: GDP deflator = (9 / 7) * 100 = 128.57
Step 4: Analyze the values of the GDP deflator: The GDP deflator measures the overall price level of goods and services produced within a country. A value of 108.33 for 2014-15 indicates that prices have increased by 8.33% compared to the base year. Similarly, a value of 128.57 for 2016-17 indicates that prices have increased by 28.57% compared to the base year.
By analyzing the values of the GDP deflator, we can observe the inflationary trends in the economy.
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