How to solve question #12 and #13 The accompanying table provides the annual rea

Question

How to solve question #12 and #13 The accompanying table provides the annual real (in billions of 2002 dollars) and nominal GDP (in billions of dollars) for Canada. Calculate the GDP deflator for each year. Use the GDP deflator to calculate the inflation rate for all years except 2007. The accompanying table contains two price indexes for the years 2009, 2010, and 2011: the GDP deflator and the CPI. For each price index, calculate the estimated inflation rate from 2009 to 2010 and from 2010 to 2011. (Note that both price indexes have a 2002 base year.)

Explanation / Answer

12. The accompanying table provides the annual GDP.... for Canada.

a. GDP deflator:

GDP deflator for 2008 = 1320.3 / 1311.3 x 100 = 100.68 /

GDP deflator for 2009 = 1283.7 / 1311.3 x 100 = 97.89 /

GDP deflator for 2010 = 1325.0 / 1311.3 x 100 = 101.04 /

GDP deflator for 2011 = 1356.9 / 1311.3 x 100 = 103.47 /

b. Inflation rate:

Inflation rate for the year 2008 = 0.68%

Inflation rate for the year 2009 = -(2.11%)

Inflation rate for the year 2010 = 1.04%

Inflation rate for the year 2011 = 3.47%.

13. Expected rate of inflation:

Expected inflation 2009-2010 = -(0.56%)

Expected inflation 2010-2011 = 2.25%.

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