# how to calculate gdp deflator with base year

In the below template, we have calculated this Deflator for the year 2010 using the above-mentioned formula of GDP Deflator. If we calculate nominal GDP as described above, we find that for the year 2015, it amounts to USD 400,000 (100,000*2 + 200,000*1). The table below shows the quantity produced and prices of both goods for three consecutive years (2015, 2016, and 2017). Here we discuss how to calculate GDP Deflator using its formula along with practical examples and its importance. Juice = (\$8 * 130) + (\$10 * 110) + (\$11 * 90) = \$3130 3. 2010: 7,000 / 7,000 = 100.0 2. Opportunity Cost of Time, 12 Things You Should Know About Economics. To calculate the GDP price deflator formula, we need to know the nominal GDP and the real GDP. You are required to calculate real GDP based on these estimates. The GDP deflator of the base year is 100. (Use 2017 as the base year.) Another example can be of ISRO satellite which shall be reflected in the deflator. 2013: 10,120 / 9,412 = 107.5 5. The Difference . Specifically, the GDP deflator measures the current price level of domestically produced goods relative to the price level in a specific base year. Such situations can push the economy into deflation with the implication being that corporate earnings and debt servicing ability which closely tracks Nominal GDP will keep on deteriorating while inflation-adjusted GDP (. The GDP deflator can also be used to calculate the inflation levels with the below formula: Extending the above example, we have calculated the inflation for 2011 and 2012. That means, from 2015 to 2016, the price level has increased by 60.9% (160.9 – 100). WPI or CPI is available on a monthly basis whereas deflator comes with a quarterly or yearly lag after GDP is released. which is approximately equal to 3.415%. By Raphael Zeder | Updated Jul 13, 2020 (Published Nov 14, 2017). This indicates that the aggregate price levels are smaller in 2013 and 2014 indicating the impact of inflation on GDP, measuring the price of inflation/deflation compared to the base year. If you continue to use this site we will assume that you are ok with that. To determine the Real GDP, you need to choose a base year and then use the pricing of different products and services in that year to determine the total sum of consumer expenditures on durable and non-durable goods and services, sum of expenditures on investments, sum of all government spending on goods and services and the difference between imports and exports for the year that you are … Now that we know both nominal and real GDP, we can compute the actual GDP deflator. Real GDP adjusts nominal GDP so that it reflects the price levels that prevailed in a reference year, called the "base year." Calculate nominal GDP, real GDP, and the GDP deflator for each year. Thus, monthly changes in inflation cannot be tracked which does impact its dynamic usefulness. It assigns changing weights over time as a composition of GDP changes. The GDP Deflator is discussed in this video along with several numerical examples. Real GDP The value of final goods and services evaluated at​ base-year prices. This formula shows changes in nominal GDP that cannot be attributed to changes in real GDP. It compares the price of the fixed basket of goods and services to the price of a basket in the base year. This gives us the change in nominal GDP (from the base year) that cannot be attributed to changes in real GDP. DataBank. In the year 2017, the economy produces 100 loaves of bread that sell for \$2 each. Formula. 2014: 11,111 / 10,852 = 102.4 6. Here, we have used the following data for the calculation of this formula. 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