Between 2015 and 2016, the country of North Grogolia experienced a growth rate of -1.4%. If nominal GDP had increased by 3.1% and the population growth was recorded at 0.7%, then calculate the annual inflation rate in North Grogolia. Give your answer to one decimal.

3.8%

Explanation:

To calculate this you can use the Economic Growth Formula because price change is one of the components of the equation and as you may know, inflation is the change in Prices from one period to the next.

The Equation is,

Economic Growth = % Δ Nominal GDP – % Δ Prices – % Δ Population.

Making % Δ Prices the subject gives,

% Δ Prices = - Economic growth + % Δ Nominal GDP - % Δ Population

= - (- 1.4%) + 3.1% - 0.7%

= 1.4% + 3.1% - 0.7%

= 3.8%

The inflation rate is therefore 3.8%

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