Answer:
Year 1 GDP Deflator is 100%
Year 2 GDP Deflator is 30%
Year 3 GDP Deflator is 14.29%
Inflation Rate between year 2 and year 3 is 50%
The Real GDP growth Rate for Year 2 and year 3 is 110%
Step-by-step explanation:
Year 1
Price of chocolate bar is $2 and 3 bars are sold that year so the real GDP is 3 x $2=$6 which we are also given that this year is the nominal base year so the nominal GDP is also $6. GDP is the sum of all market value produced products in an economy. Therefore that’s why we calculated as the price of a chocolate multiplied the number produced. To calculate the GDP Deflator will be as follows:
GDP Deflator= (nominal GDP/Real GDP) x 100
= ($6/$6) x 100
= 100%
Year 2
Price of chocolate bars is $4 per bar and 5 bars were produced therefore Real GDP =$4 x 5 = $20, now we will calculate the GDP deflator as we have been told that year is the nominal year therefore nominal GDP is $6.
GDP Deflator= (nominal GDP/Real GDP) x 100
= ($6/$20) x100
= 30%
Year 3
Price of chocolate bars is $6 per bar and 7 bars were produced therefore Real GDP =$6 x 7 =$42, now we calculate the GDP deflator as we have been told that year 1 is the nominal year therefore nominal GDP is $6.
GDP Deflator = (nominal GDP/ Real GDP) x 100
= ($6/$42)
=14.29%
Now we calculate the inflation rate between year 2 and year 3.we use the CPI (consumer price index to get the inflation rate for year 2 ad 3)
Consumer Price Index = (Current price of bar/previous price of bar) x 100 formula for CPI
= ($6/$4) x 100= 150%-100%
= 50% is the inflation rate as the consumer price gave us a positive value.
Now we compute the real GDP growth rate between year 2 and year 3
Real GDP growth rate = [ (current Real GDP- Previous Real GDP)/Previous Real GDP] x 100
= ($42-$20)/$20
= 110% so real GDP grew by 110% from year 2 to year 3.
