Question

Using the chart below, calculate the following:

GDP Deflator
Year Consumer Government Investment Net Exports
Quantity Price Quantity Price Quantity Price Quantity Price
2023 45 billion $23 35 billion $15 16 billion $24 -6 billion $3

2022 43 billion $21 24 billion $14 13 billion $22 -5 billion $2
Calculate using the GDP Deflator?

Answer 1

To calculate the GDP deflator, we first need to determine the nominal GDP and the real GDP.

Let's start with the year 2023.

Nominal GDP for 2023 = (Quantity of Consumer Goods * Price of Consumer Goods) + (Quantity of Government Goods * Price of Government Goods) + (Quantity of Investment Goods * Price of Investment Goods) + (Quantity of Net Exports * Price of Net Exports)

That is, Nominal GDP for 2023 = (45 billion * $23) + (35 billion * $15) + (16 billion * $24) + (-6 billion * $3).

For real GDP, we use the prices from the base year, which in this case is 2022.

Real GDP for 2023 = (Quantity of Consumer Goods in 2023 * Price of Consumer Goods in 2022) + (Quantity of Government Goods in 2023 * Price of Government Goods in 2022) + (Quantity of Investment Goods in 2023 * Price of Investment Goods in 2022) + (Quantity of Net Exports in 2023 * Price of Net Exports in 2022)

That is, Real GDP for 2023 = (45 billion * $21) + (35 billion * $14) + (16 billion * $22) + (-6 billion * $2).

Finally, GDP deflator = (Nominal GDP / Real GDP) * 100.

Explanation: