Calculating Inflation Using the GDP Deflator

Calculating Inflation Using the GDP Deflator - Calculating...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Calculating Inflation Using the GDP Deflator The other major price index used to determine the price level is the GDP deflator, a price index that shows how much of the change in the GDP from a base year is reliant on changes in the price level. For example, let's calculate, using the table above, the GDP deflator for Country B in period 3 using period 1 as the base year. In order to find the GDP deflator, we first must determine both nominal GDP and real GDP in period 3. Nominal GDP in period 3 is (10 X $2) + (9 X $6) = $74 and real GDP in period 3 using period 1 as the base year is (10 X $1) + (9 X $6) = $64. The ratio of nominal GDP to real GDP is ($74 / $64 ) - 1 = 16%. This means that the price level rose 16% from period 1, the base year, to period 3, the comparison year. Thus, the inflation rate from period 1 to period 3 was 16%. Notice that comparison year....
View Full Document

This note was uploaded on 12/13/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.

Page1 / 2

Calculating Inflation Using the GDP Deflator - Calculating...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online