The next four questions refer to the following price and output data over a five-year period for an economy that produces only one good.Assume that year 2 is the base year.

Question

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The Answer is

(a)If year 2 is the base year,give the price index for year 3.
(b)Give the nominal GDP for year 4.
(c)What is the real GDP for year 4?
(d)Tell which years you would deflate nominal GDP and which years you would inflate nominal GDP in finding real GDP.
(a)4/3 × 100 = 133.
(b)Nominal GDP = 36 × $5 = $180.
(c)Real GDP = $180/167 = $107.78.
(d)You would deflate nominal GDP for years where the price index is more than 100,that is,for years 3,4,and 5.You would inflate the nominal GDP for year 1 since the price index is less than 100 relative to the base year 2.

The Next Four Questions Refer to the Following Price and Output