U.S. Nominal GDP for the year 2010 was $14,658 billion, whereas in 2000 it was $
ID: 1252881 • Letter: U
Question
U.S. Nominal GDP for the year 2010 was $14,658 billion, whereas in 2000 it was $9,951 billion. The GDP deflator for 2000 (2010) was 88 (111) using 2005 as a base year. Using the compound growth formula xt+n = xt(1 + g)^n (where xt is the value of the series at time t, n is the number of years, and g is the annual growth rate)Question: We need to find the average annual inflation rate (p) as measured by the GDP deflator.
struggling with: how can i get the average annual inflation rate from the GDP deflator? I am not sure what formula to use and in what sense I could plug these numbers in
Explanation / Answer
GDP deflator deflates the nominal number so inflation is taken out.
2000 = 88
2010 = 111
You can find the geometric average by dividing 2010 with 2000 and then taking the 10th (number of years) root and subtract one.
(111/88)^0.1 -1 = 0.0234 or 2.34% yearly inflation during that period.
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