Suppose only one Good 'X' is produced in the country. Output of Good X during 2018 & 2019 were 100 units & 110 units respectively. The market price of the product during the two years was Rs. 50 & Rs. 55 per unit respectively. Calculate the percentage change in Real Gross Domestic Product (GDP) in year 2019, using 2018 as the base year.

Question

Accepted Answer

Given:
Year 2018: Output = 100 units, Price = Rs. 50/unit
Year 2019: Output = 110 units, Price = Rs. 60/unit

Nominal GDP 2019 = 110 x 60 = Rs. 6,600
Real GDP 2019 (at 2018 prices) = 110 x 50 = Rs. 5,500

GDP Deflator = (Nominal GDP / Real GDP) x 100
= (6,600 / 5,500) x 100
= 120

This means the general price level has increased by 20% from 2018 to 2019.