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Unformatted text preview: A price index is a measure of the average level of prices for some specified set of goods and services, relative to the prices in a specified year. GDP deflator is a price index that measures the overall level of prices of goods and services included in GDP. It is often given in the formula: Real GDP = nominal GDP/GDP deflator (22.1) The GDP deflator is the amount that nominal GDP is divided by to obtain real GDP. You can rewrite the equation as: GDP deflator = nominal GDP/ real GDP. (22.2) In the first year, nominal and real GDP are equal. That means that the GDP deflator equals to 1. Lets say that in year 2, nominal GDP is $35,000 and real DGP is $30,000. That means that the GDP deflator for year 2 is $35,000/30,000 = 1.1667. The overall level of prices, measured by the GDP deflator, is 16.67% higher in year 2 than in year 1....
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This note was uploaded on 09/25/2008 for the course ECON 160 taught by Professor Baim during the Summer '98 term at UCLA.
- Summer '98