Question

Given the statistics for a small economy called Abua below, derive the GDP deflator and assert if there is evidence of inflation or otherwise.
Real GDP = $650 million
Nominal GDP = $400 million
Inflation rate = 9%
Unemployment rate = 15%

Answer 1

GDP Deflector=$\frac{Nominal GDP}{Real GDP} ×100=\frac{400}{650} ×100$ =61.538

There is no inflation

The GDP Deflector of 61 percent means the aggregate level of prices reduced by 39 percent from the base year to the current year.