Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $1.50 in 2009. If 4 apples were produced in 2002 and 5 in 2009, whereas 3 oranges were produced in 2002 and 5 in 2009, then the GDP deflator in 2009, using a base year of 2002, was approximately:. A) 1.5.
B) 1.7.
C) 1.9.
D) 2.0.

B) 1.7

Explanation:

GDP deflator simply shows the occurring event of the level of prices in the economy which is why It is often the ratio of nominal GDP to real GDP.

GDP deflator in 2009 will be:

Norminal GDP

Cost of apple= $1 in 2009

Apple produced =5 in 2009

Cost of oranges= $1.50 in 2009.

Orange produce= 5 in 2009

$1.00*(5)+$1.50*(5)

=5+7.5

=$12.50

Real GDP

Cost of apple= $0.50 in 2002

Apple produced =5 in 2002

Cost of oranges= $1 in 2002

Orange produce= 5 in 2002

0.50*(5)+$1.00*(5)

=2.5+5

=$7.50

GDP deflator = Nominal GDP/Real GDP)

=$12.50/$7.50

=1.666

approximately 1.7

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