In Year 1, Country Z recorded a Nominal GDP of \text{₦}600\text{ billion} with a base pric… — JAMB UTME

In Year 1, Country Z recorded a Nominal GDP of $\text{₦}600\text{ billion}$ with a base price index of $100$ . In Year 2, the Nominal GDP rose to $\text{₦}1,080\text{ billion}$ and the total population reached $36\text{ million}$ . If the Real Per Capita Income in Year 2 was calculated as $\text{₦}25,000$ , what was the GDP deflator for Year 2?

Answer: 120

Answer

120

To find the GDP Deflator in Year 2, first derive the total Real GDP by multiplying the Real Per Capita Income by the total population:

\text{₦}25,000 \times 36,000,000 = \text{₦}900\text{ billion}

. Then apply the GDP deflator formula

\text{GDP Deflator} = (\text{Nominal GDP} / \text{Real GDP}) \times 100

. Substituting the values yields

(1,080 / 900) \times 100 = 120

Step-by-Step Solution

Calculate the total Real GDP for Year 2 using the Real Per Capita Income and population.

Real GDP = ₦25,000 × 36,000,000 = ₦900 billion

Real Per Capita Income represents total Real GDP divided by the total population.

Rearrange the relationship between Nominal GDP, Real GDP, and GDP Deflator to express the GDP Deflator.

GDP Deflator = (Nominal GDP / Real GDP) × 100

Real GDP adjusts Nominal GDP for price level change via the GDP Deflator.

Substitute Nominal GDP (₦1,080 billion) and Real GDP (₦900 billion) to calculate the deflator value.

GDP Deflator = (1,080 / 900) × 100 = 120

This measures the price level change in Year 2 relative to the base year index of 100.

Key Concept

Relationship between Nominal GDP, Real GDP, GDP Deflator, and Real Per Capita Income

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