AP® Macroeconomics · Free response

Nominal GDP and the GDP deflator in Country Z: real GDP, output growth and prices

write it first, then score yourself point by point

Short free-response question · four-function calculator · 5 points · about 12 minutes

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The question

Name: ______________________   Date: ____________   Nominal GDP and the GDP deflator in Country Z: real GDP, output growth and prices (5 points)

Country Z, an invented country, reports its nominal GDP and its GDP deflator. Year 1 is the base year.

Data

Nominal GDP and the GDP deflator in Country Z

Country Z, Year 1 is the base year (nominal GDP in billions of dollars; invented data for practice)
YearNominal GDPGDP deflator
1500100
2600125

  1. (A) Calculate Country Z's real GDP in Year 2. Show your work. [1 point]

  2. (B) Did Country Z's output of goods and services increase, decrease or stay the same from Year 1 to Year 2? Explain using your answer to part A. [1 point]

  3. (C) Calculate the inflation rate from Year 1 to Year 2, measured by the GDP deflator. Show your work. [1 point]

  4. (D) In Year 3, Country Z's nominal GDP is 660 billion dollars and its real GDP is 550 billion dollars. Calculate the GDP deflator for Year 3. Show your work. [1 point]

  5. (E) Based on your answer to part D, identify whether Country Z had inflation, disinflation or deflation from Year 2 to Year 3. Explain. [1 point]