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Question
Using the following information, calculate and analyse the value of Gross Domestic Product (GDP) deflator:
| Year | 2014-15 | 2016-17 |
| Nominal GDP | 6.5 | 9 |
| Real GDP | 6.5 | 7.2 |
Solution
GDP Deflator (2014-15) = `"Nominal GDP"/"Real GDP" xx 100`
= `"6.5"/"6.5" xx 100`
= 100
GDP Deflator (2016-17) = `"Nominal GDP"/"Real GDP" xx 100`
= `9/"7.2" xx 100`
= 125
Analysis:
In 2016-17, GDP deflator of 125 shows that prices have increased 25% as compared to the base year (2014-15)
It is a warning for the economy to take necessary steps to control inflation.
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