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YearGoodPriceQuantity2020Ice cream cones$2.501,000  Hot dogs$1.25500  Surfboards$100.00102021Ice cream cones$3.50800  Hot dogs$2.25400  Surfboards$100.0014What is the GDP deflator for 2021 if it equals 1.0 in 2020?

Question

YearGoodPriceQuantity2020Ice cream cones2.501,000 Hotdogs2.501,000  Hot dogs1.25500  Surfboards100.00102021Icecreamcones100.00102021Ice cream cones3.50800  Hot dogs2.25400 Surfboards2.25400  Surfboards100.0014What is the GDP deflator for 2021 if it equals 1.0 in 2020?

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Solution

To calculate the GDP deflator for 2021, we first need to calculate the nominal GDP and real GDP for both 2020 and 2021.

  1. Calculate the Nominal GDP for 2020 and 2021:

Nominal GDP is calculated by multiplying the price of each good by the quantity of that good, and then summing up the total for all goods.

For 2020: Ice cream cones: 2.50∗1,000=2.50 * 1,000 = 2,500 Hot dogs: 1.25∗500=1.25 * 500 = 625 Surfboards: 100.00∗10=100.00 * 10 = 1,000 Total Nominal GDP for 2020 = 2,500+2,500 + 625 + 1,000=1,000 = 4,125

For 2021: Ice cream cones: 3.50∗800=3.50 * 800 = 2,800 Hot dogs: 2.25∗400=2.25 * 400 = 900 Surfboards: 100.00∗14=100.00 * 14 = 1,400 Total Nominal GDP for 2021 = 2,800+2,800 + 900 + 1,400=1,400 = 5,100

  1. Calculate the Real GDP for 2021:

Real GDP is calculated by multiplying the quantity of each good by the price of that good in the base year (2020), and then summing up the total for all goods.

For 2021: Ice cream cones: 2.50∗800=2.50 * 800 = 2,000 Hot dogs: 1.25∗400=1.25 * 400 = 500 Surfboards: 100.00∗14=100.00 * 14 = 1,400 Total Real GDP for 2021 = 2,000+2,000 + 500 + 1,400=1,400 = 3,900

  1. Calculate the GDP Deflator for 2021:

The GDP deflator is calculated by dividing the nominal GDP by the real GDP and then multiplying by 100.

GDP Deflator for 2021 = (Nominal GDP for 2021 / Real GDP for 2021) * 100 = (5,100/5,100 / 3,900) * 100 = 1.3077

So, the GDP deflator for 2021 is 1.3077 if it equals 1.0 in 2020.

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