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13 September, 13:43

Between 2015 and 2016, the country of West Fredonia experienced a growth rate of - 2.6%. If nominal GDP had increased by 3.5% and the population growth was recorded as 0.6%, then calculate the annual inflation rate in West Fredonia. Give your answer to one decimal.

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  1. 13 September, 15:16
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    5.5%

    Explanation:

    Nominal GDP = 3.5%

    Economic growth rate = - 2.6 %

    population growth = 0.6%

    To calculate the annual inflation rate:

    Economic growth rate = Nominal GDP - %change in price - population growth

    -2.6 = 3.5 - %change in price - 0.6

    Therefore the %change in price (inflation rate):

    inflation rate = 3.5 + 2.6 - 0.6

    = 3.5 + 2

    = 5.5%

    The inflation rate of a country measures the relative increase increase in the price of commodities without a relative increase in purchasing power
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