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The Economy of Nsiana produces two commodities, Yam and Kenkey. From the National income account, the...

The Economy of Nsiana produces two commodities, Yam and Kenkey. From the National income account, the quantity of Yam for year 1, Year 2 and Year three are respectively 60, 80, and 100 units. The quantity of Kenkey for the Year 1, Year 2 and Year 3 are 100, 110 and 130 units respectively. The price per unit of Yam for Year 1, Year 2, and Year 3 are respectively GH¢1.00, GH¢1.00, GH¢1.40. The price of Kenkey for three years are GH¢0.80, GH¢0.90 and GH¢1.00 respectively. From this information, If year 1 is the base year, the value for this economy’s GDP deflator in year 2
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Answer #1

Step 1

Calculate nominal GDP for Year 2 -

Nominal GDP = [Quantity of Yam in year 2 * Price of Yam in year 2] + [Quantity of Kenkey in year 2 * Price of kenkey in year 2]

Nominal GDP = [80 * 1.00] + [110 * 0.90]

Nominal GDP = 80 + 99

Nominal GDP = 179

The nominal GDP for year 2 is 179.

Step 2

Calculate real GDP for Year 2 -

Real GDP = [Quantity of Yam in year 2 * Price of Yam in year 1] + [Quantity of Kenkey in year 2 * Price of kenkey in year 1]

Real GDP = [80 * 1.00] + [110 * 0.80]

Real GDP = 80 + 88

Real GDP = 168

The real GDP for year 2 is 168.

Step 3

Calculate the GDP deflator for Year 2

GDP deflator = [Nominal GDP/Real GDP] * 100

GDP deflator = [179/168] * 100

GDP deflator = 106.55

Thus,

The GDP deflator in Year 2 is 106.55

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