Answer:
Real GDP [2002] = 5, Real GDP [2007] = 6.5, Nominal GDP [2002] = 5, Nominal GDP [2007] = 11
GDP Deflator = 169, Implicit Inflation rate = 69%
Explanation:
Real GDP is the value of goods & services produced, at base year prices. Current year = 2007, Base year = 2002 here.
2002 : Qb = 4 , Qp = 3 , Pb = 0.5 , Pp = 1
2007 : Qb = 5 , Qp = 4 , Pb = 1 , Pp = 1.5
Real GDP [2002] = Pb(02) Qb(02) + Pp(02) Qp(02)
= (0.5)4 + 1(3) = 2 + 3 = 5
Real GDP [2007] = Pb(02) Qb(07) + Qp(07) Pp(02)
= 0.5 (5) + 1 (4) = 2.5 + 4 = 6.5
Nominal GDP [2002] = Pb(02) Qb(02) + Pp(02) Qp(02)
= (0.5)4 + 1(3) = 2 + 3 = 5
Nominal GDP [2007] = Pb(07) Qb(07) + Pp(07) Qp(07)
= 1 (5) + 1.5 (4) = 5 + 6 = 11
GDP Deflator [currrent year 07] = Nominal GDP (07) / Real GDP (07) x 100
(11 / 6.5) x 100 ~ 169
So, implicit inflation rate is 69%
