Problem and Application for Practice Session 17.04.2020

Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6. Year 1 is the base year.

a. What is nominal GDP for each of these three years?

b. What is real GDP for each of these years?

c. What is the GDP deflator for each of these years?

d. What is the percentage growth rate of real GDP from year 2 to year 3?

e. What is the inflation rate as measured by the GDP deflator from year 2 to year 3?