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Exercise: inflation and GDP deflator

You have the following table containing information about country Y's GDP deflator, nominal, and real GDP. If the base year is 2015, fill in the blanks and then find the annual inflation rate for each year.

Year Nominal GDP GDP Deflator Real GDP
2015$23,457100$23,457
2016$25,752...$23,943
2017$25,982108.1...
2018$26,016...$25,431.1
2019$26,323105.5...
Solution:

Year Nominal GDP GDP Deflator Real GDP  Inflation rate
2015$23,457100$23,457n.a
2016$25,752107.6$23,9437.6%
2017$25,982108.1$24,035.20.45%
2018$26,016102.3$25,431.1-5.37%
2019$26,323105.5$24,950.63.13%

 GDP deflator for the year 2018:

Real GDP for the year 2017:


General formula to find real GDP by re-arranging the GDP deflator formula:


Notice that the sub-index i is for the year.


The (annual) inflation rate is simply the growth rate of prices from a year to its previous year:


Inflation rate of the year 2018:


Notice that in 2018 country Y experienced a negative inflation rate (i.e deflation). This means that from 2017 to 2018 prices dropped by about 5.3%.
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Location: New York, NY, USA

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