Question

The following table shows price and quantity data of Country BF which produces only two products: food and beverages.

	Beverages products		Food products
	Price $	Quantity (tons)	Price $	Quantity (tons)
2017	2	2	10	10
2018	3	3	11	20
2019	4	4	13	25

Calculate the following:

a.     the nominal GDP for each year (10 points)

b.     the real GDP for each year using 2017 as the base year (10 points)

c.      the GDP deflator for each year (10 points)   

d.      the inflation rate for 2018 and 2019 using the GDP deflator (10 points)

Answer 1

	Beverages	Food
	Price	Quantity	Price	Quantity
2017	2	2	10	10
2018	3	3	11	20
2019	4	4	13	25

a) Nominal GDP in 2017 = Price of beverage in 2017 * Quantity of beverage in 2017 + Price of food in 2017 * Quantity of food in 2017 = 2 * 2 + 10 * 10 = 104

Nominal GDP in 2018 = Price of beverage in 2018 * Quantity of beverage in 2018 + Price of food in 2018 * Quantity of food in 2018 =3 * 3 + 11 * 20 = 9 + 220 = 229

Nominal GDP in 2019 = Price of beverage in 2019 * Quantity of beverage in 2019 + Price of food in 2019 * Quantity of food in 2019 = 4 * 4 + 13 * 25 = 341

b) Real GDP in 2017 = Price of beverage in 2017 * Quantity of beverage in 2017 + Price of food in 2017 * Quantity of food in 2017 = 2 * 2 + 10 * 10 = 104

Real GDP in 2018 = Price of beverage in 2017 * Quantity of beverage in 2018 + Price of food in 2017 * Quantity of food in 2018 = 2 * 3 + 10 * 20 = 6 + 200 = 206

Real GDP in 2019 = Price of beverage in 2017 * Quantity of beverage in 2019 + Price of food in 2017 * Quantity of food in 2018 = 2 * 4 + 10 * 25 = 258

c) GDP deflator = Nominal GDP / Real GDP

GDP Deflator in 2017 = 104 / 104 = 1

GDP Deflator in 2018 = 229 / 206 = 1.11

GDP Deflator in 2019 = 341 / 258 = 1.32

d) Inflation rate for 2018 = [(GDP Deflator 2018 - GDP deflator 2017) / GDP Deflator 2017] * 100 = 11%

Inflation rate for 2019 = [(GDP Deflator 2019 - GDP deflator 2018) / GDP Deflator 2018] * 100 = 18.91%