Economics Terms Exercise - GDP Deflator

Imagine an economy that produces two goods (A and B) over a period of three years, from 2018 (base year) to 2020. The realized prices (P) and quantities (Q) are as follows:

Based on this information, the following values of nominal and real GDP have been realized in the three subsequent years (check our article on GDP if you are not familiar with these calculations).

Based on the above information, calculate the following:

1. The value of the GDP deflator for 2019 and 2020.
2. The inflation rate between 2018 and 2019 and between 2019 and 2020.

Click on the arrow below to see the solution.

• See the solution

  	2018 (base)	2019	2020
  1) Nominal GDP (current prices)	€100,000	€107,100	€109,181
  2) Real GDP (constant 2018 prices)	€100,000	€105,000	€102,000
  3) GDP Deflator (100 = 2018)	100	102	107
  4) Inflation Rate (%)	-	2%	4.9%

  1) Deflator₂₀₁₉ = ∑ (GDP₂₀₁₉ / realGDP₂₀₁₉) * 100 = (107,100 / 105,000) * 100 = 102

  2) Deflator₂₀₂₀ = ∑ (GDP₂₀₂₀ / realGDP₂₀₂₀) * 100 = (109,181 / 102,000) * 100 = 107

  3) Inflation₂₀₁₉ = ((Deflator₂₀₁₉ / Deflator₂₀₁₈) - 1) * 100 = ((102 / 100) - 1) * 100 = 0.02

  4) Inflation₂₀₂₀ = ((Deflator₂₀₂₀ / Deflator₂₀₁₉) - 1) * 100 = ((107 / 102) - 1) * 100 = 0.049

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