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Suppose that the nominal GDP for 1980 is 490 while the 1980 real GDP is 118....

Suppose that the nominal GDP for 1980 is 490 while the 1980 real GDP is 118. If the base year is 1970, how much larger is the 1980 price level compared to the 1970 price level?

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Answer #1

GDP Deflator is used to compare the price levels from one year to another. It is a measure of inflation in the economy. It can be used to compare price levels in the current year to that of the base year.

GDP Deflator is the ratio of value of output in an economy in a particular year at current prices to that of prices in the base year. This means that it is the ratio of nominal GDP to real GDP.

GDP Deflator = (Nominal GDP / Real GDP) * 100

Here,

Nominal GDP in 1980 = 490

Real GDP in 1980 = 118

Thus, GDP Deflator = (Nominal GDP / Real GDP) * 100 = (490/118)*100 = 415.25

Thus, the price level in 1980 is 4.1525 ( i.e. 415.25/100) times to the price level in 1970.

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