Question

Suppose the country of Macecon produces only two final goods, Theorems (Ts) and Lemmas (Ls). In 2018 it produced 10 Ts at a price of $50 and 50 Ls at a price of $10. In 2019 it produced 9 Ts at a price of $60 and 60 Ls at a price of $11. Using 2018 as the base year, the inflation rate in the GDP deflator between 2018 and 2019 was 5%.

Answer 1

NominalGDP₂₀₁₉$=9×60+60×11=$ $ $1200;$

RealGDP₂₀₁₉$=9×50+60×10=$ $$1050;$

GDP deflator ₂₀₁₉$=\frac {1200}{1050}×100=$ $ $114;$

Answer: GDP deflator is 14%.