Calculate the value of the GDP deflator of an economy that has witnessed a 3.5 percent decrease in the general price level in the current year
If the price level in the given economy has decreased by 3.5 percent, then the size of nominal GDP of the economy is 3.5 percent smaller than its real GDP. The value of the GDP deflator can be calculated as follows:
Let the value of the real GDP of the economy be X.
As the value of nominal GDP is 3.5 percent smaller than real GDP,
Nominal GDP = X ? (3.5X / 100) = 96.5X / 100 = 0.965X.
The formula to calculate the GDP deflator is as follows:
GDP Deflator = (Nominal GDP / Real GDP) × 100 = (0.965X / X) × 100 = 96.5
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