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The GDP deflator was 30 and real interest was 6
The GDP deflator was 30 and real interest was 6.23% in 1995. Nominal GDP in 1995 was $993. The value of this nominal GDP was $2449 in 2005 prices and the real interest rate was 3.21%. What would be the value of GDP deflator in 2005?
a) 81.6
b)33.1
c)Cannot be determined
d)73.9
Expert Solution
The real value of the 1995 GDP in 2005 increased from 993 in 2005 prices to 2449 in 2005 prices. Therefore, the value of 1995 GDP in 2005 was 2449/993 = 2.466 times its value in 1995. The GDP deflator for 1995 is 30. Therefore, the GDP deflator for 2005 is 2.466 × 30 = 73.9. Therefore, the correct option is d.
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