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If nominal GDP was reported at $137.9 billion and real GDP was reported at $134.5 billion, what...

Question:

If nominal GDP was reported at $137.9 billion and real GDP was reported at $134.5 billion, what was the inflation rate for the period?

Gross Domestic Product:

A gross domestic product is the market value of all goods and services produced by the entire nation strictly made within the nation's geographical boundaries during one period.

Answer and Explanation:

We will compute for the GDP deflator which is defined as the change of price inflation accounted for in the nominal and real GDP.

In this case:

  • Nominal GDP is the total market value of all goods the entire nation has produced.
  • Real GDP is a nominal GDP adjusted for inflation on the covered period.

Nominal GDP < Real GDP = inflation

Nominal GDP = Real GDP = no inflation or deflation

Nominal GDP > Real GDP = deflation

{eq}GDP~Deflator~=~\displaystyle \frac{Nominal~GDP}{Real~GDP}~*~100 {/eq}

{eq}GDP~Deflator~=~\displaystyle \frac{137.9}{134.5}~*~100 {/eq}

The GDP deflator or inflation rate for the period is 102.52.


Learn more about this topic:

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Gross Domestic Product: Definition and Components

from Economics 102: Macroeconomics

Chapter 4 / Lesson 3
61K

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