Exercise 2.4

• In 2021, the nominal GDP of Scotland was USD 26.678 trillion.
• The nominal GDP is expected to reach USD 23.345 trillion in 2022.
• In comparison, the real GDP of Scotland in 2021 stood at USD 20.987 trillion.
• The nations real GDP is then expected to become USD 22.765 trillion in 2022.
• Based on the information presented above, calculate the following macroeconomic indicators for years 2021 and 2022.

1. Calculate the GDP price deflator in years 2021 and 2022.

2. Determine the inflation rate based on the changes in the GDP price deflator from year 2021 to year 2022.

3. Compute the nominal GDP growth rate from year 2021 to year 2022.

4. Estimate the real GDP growth rate from year 2021 to year 2022.

5. Using your answers in part (c) and (d), re-calculate the inflation rate from year 2021 to year 2022.

6. Explain why your inflation rate found in part (b) may somewhat differ from the inflation rate in part (e).

Discuss which of the two methods is a superior way of calculating inflation.