Question

Consider an economy that only produces two goods: strawberries and cream. Use the table below to compute nominal GDP, real GDP, and the GDP deflator for each year. (Year 2014 is the base year.)

Year	Price of strawberries	Quantity of strawberries	Price of cream	Quantity of cream
2014	$1.00	100	$3.00	200
2015	$2.00	125	$3.50	400
2016	$3.00	150	$4.00	500

Year	Nominal GDP	Real GDP	GDP deflator
2014	$	$
2015	$	$
2016	$	$

Answer 1

Nominal GDP = Sum of price of a good in the current year * Quantity of good in the current year

Real GDP = Sum of price of a good in the base year * quantity if good in the current year

GDP Deflator = Nominal GDP/Real GDP * 100

For 2014 (2014 is base year)

Nominal GDP = 1*100+3*200= 700

Real GDP = 1*100+3*200= 700

GDP Deflator = 700/700 * 100 = 100

For 2015 (2014 is base year)

Nominal GDP = 2*125+3.50*400= 1650

Real GDP = 1*125+3*400= 1325

GDP Deflator = 1650/1325 * 100 = 124.53

For 2016 (2014 is base year)

Nominal GDP = 3*150+4*500= 2450

Real GDP = 1*150+3*500= 1650

GDP Deflator = 2450/1650 * 100 = 148.48