# gdp deflator problems and solutions

GDP Practice Problems 1. <<8f8c41c8599aa04284589cdb641142e3>]>> 0000007301 00000 n D) 300. It's based on a fixed basket of goods that an average person buys each year. 32 0 obj <>stream 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 Why should the aggregate final expenditure of an economy be equal to the aggregate factor payments? 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. That means, from 2015 to 2016, the price level has increased by 60.9% (160.9 – 100). CPI and GDP deflator both measures the overall level of prices in the economy. However, things become more interesting when we look at the following years. 0000002376 00000 n Problem Set #4 Solutions As discussed in lecture, this problem set will not be collected. The GDP deflator is one measure that economists use to monitor the average level of prices in the economy. 0000001499 00000 n 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). 0000003138 00000 n Option (a) Nominal GDP measures the value of the economic output at current market prices. (b) doubles. The GDP deflator for the base year will always be 100 because nominal and real GDP have to be equal. Enjoy the videos and music you love, upload original content, and share it all with friends, family, and the world on YouTube. 11) The typical bundle of goods and services on which the GDP deflator is based. To make the 2003 GDP comparable with the base year GDP, the 2003 GDP must be: B) 200. d. for changes in interest rates. Practical Example – GDP Deflator of India. Economists measure inflation, or changes in the price level, using a price index. The below graph shows the GDP Deflator of the Indian Economy: source: Tradingeconomics.com. Therefore, if there was no inflation involved, the nominal GDP would equal the real GDP. 0000000016 00000 n b. neither the CPI nor the GDP deflator. 0000001170 00000 n 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. A hurricane in Florida forces Disney World to shut down for a month. 611 22 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. 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. The GDP deflator measures the price level of all goods and services that are produced within the economy (i.e. xref 0000004507 00000 n %%EOF Problem Set 2 Solutions Page 1 of 5. c. The federal government decides to increase welfare payments. ����{�ۛ-�4I�`zpy�o���K�,B���Ԙ��@�}[Q. 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