Question 5: GDP Deflator and Real GDP

(a) Use the following table to calculate GDP price deflator in 2019 and 2020 and the change in the overallprice level from 2019 to 2020. You will need to round your answer to the nearest whole number. (8marks)

GDP	2019	2020
Nominal GDP	$26 000	$28 000
Real GDP	$21 000	$22 000

(b) Consider an economy only producing two goods: pen and bread in both Year 1 and Year 2. Canthe Real GDP of this economy increase between Year 1 and Year 2, while the Nominal GDP decreasesor remains the same? Explain your answer with a numerical example. (4 marks)