Question

A country's real gdp rose from $500 to $530 while its nominal gdp rose from $600 to $700. what was this country's inflation rate?

Answer 1

Answer: 10%

Explanation:

$Real GDP_{1} = 500 Real GDP_{2} = 530  Nominal GDP_{1} = 600 Nominal GDP_{2} = 700$

$GDP deflator = \frac{Nominal GDP}{Real GDP}*100$

GDP Deflator 1 = $\frac{600}{500} * 100= 120$

GDP Deflator 2 = $\frac{700}{530} * 100= 132$

Inflation = % Change in GDP Deflator

$= \frac{132-120}{120} * 100 = \frac{12}{120} * 100 = 10%$

Thus, the inflation rate is 10%.