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Assume that bananas cost $0.50 in 2002 and $1 in 2007, whereas pears cost $1 in 2002 and $1.50 in 2007. Suppose that 4 bananas were produced in 2002 and 5 in 2007, whereas 3 pears were produced in 2002 and 4 in 2007. Calculate the nominal GDP in 2002 and 2007, the real GDP (in 2002 prices) in 2007, the GDP deflators in 2002 and 2007 using 2002 prices. Finally, using the GDP deflators that you just calculated, find the implicit inflation between 2002 and 2007.
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