Macro Module 1 Implicit price deflator practice exam questions

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A country makes goods Y and Z in Years 1 and 2 at the quantities and prices shown below. The implicit price deflator in Year 1 is 137.

    Year 1    Year 2
    Y    Z    Y    Z
Quantity    55    151    77    130
Price    120    28    152    89


Use the chain-link method for the base prices.


Question 1.2: Nominal GDP

What is the nominal GDP in Year 1 and in Year 2?

●    Year 1: 55 × 120 + 151 × 28 = 10,828
●    Year 2: 77 × 152 + 130 × 89 = 23,274


Question 1.3: Base prices

What are the base prices for Good Y and for Good Z?

●    Good Y: (120 + 152) / 2 = 136.00
●    Good Z: (28 + 89) / 2 = 58.50


Question 1.4: GDP at base prices

What is the GDP in Year 1 and in Year 2 at the base prices?

●    Year 1: 55 × 136 + 151 × 58.50 = 16,313.50
●    Year 2: 77 × 136 + 130 × 58.50 = 18,077.00


Question 1.5: Ratio of GDP in Year 2 to Year 1

What is the ratio real GDP in Year 2 to real GDP in Year 1?

Answer 1.5: 18,077.00 / 16,313.50 = 1.1081


Question 1.6: Real GDP

What is Real GDP in Year 1?

Answer 1.6: 10,828 / (137 / 100) = 7,903.65


Question 1.7: Real GDP

What is Real GDP in Year 2?

Answer 1.7: 7,903.65 × 1.1081 = 8,758.03


Question 1.8: Implicit price deflator

What is the implicit price deflator in Year 2?

Answer 1.8: 100 × 23,274 / 8,758.03 = 265.74