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Between 2015 and 2016, the country of South Dantoine experienced a growth rate of -0.3%. If nominal GDP had increased by 3.1% and the population growth was recorded as 0.7%, then calculate the annual inflation rate in South Dantoine.

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jepessoa

Answer:

inflation rate = 3.41%

Explanation:

real growth rate = (real GDP 2016 / real GDP 2015) - 1 = -0.3%

if we use 2015 as our base year, its real GDP = 100

so 2016 real GDP = 99.7

real GDP is nominal GDP adjusted for inflation:

in this case, 2016 nominal GDP = 100 + nominal growth = 100 + 3.1 = 103.1

GDP deflator = 103.1 / 99.7 = 1.0341

inflation rate = deflator - 1 =  1.0341 - 1 = 0.0341 or 3.41%

Since we are calculating GDP, not GDP per capita, the increase in population is not relevant here.  

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