Q20 of 24 Page 1

Use the following information of an imaginary country:


i) For which year is real GDP and nominal GDP same and why?


ii) Calculate Real GDP for the given years. Is there any year for which Real GDP falls?


GDP deflator represents the price inflation in the economy during a particular period of time.


GDP deflator = (Nominal GDP/Real GDP)*100


Real GDP = (Nominal GDP/GDP Deflator)*100


i)



For the year 2014-15, both the nominal GDP and the real GDP is the same. This represents the situation where there is no price inflation in the economy. Thus nominal GDP = real GDP.


ii) GDP deflator represents the price inflation in the economy during a particular period of time.


GDP deflator = (Nominal GDP/Real GDP)*100


Real GDP = (Nominal GDP/GDP Deflator)*100



Yes, for both the years 2015-16 and 2016-17, real GDP is falling below nominal GDP. This depicts the situation of price inflation in the economy. But the intensity of inflation is lesser in 2016-17 as compared to 2015-16.


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