If nominal GDP grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately ______ percent.

To determine the approximate growth of the GDP deflator, one must understand the relationship between nominal GDP, real GDP, and the GDP deflator itself.

Nominal GDP measures the value of all finished goods and services produced within a country’s borders in a specific time period using current prices, without adjusting for inflation. On the other hand, real GDP accounts for inflation by adjusting nominal GDP using a price index, reflecting the actual volume of production.

The formula that connects these concepts is:

Nominal GDP = Real GDP × GDP Deflator

From the information given, we can express the growth rates as follows:

1. The growth rate of nominal GDP is 5 percent.
2. The growth rate of real GDP is 3 percent.

To find the growth rate of the GDP deflator, we can break it down. The growth rate of nominal GDP can be expressed as the sum of the growth rates of real GDP and the GDP deflator (in percentage terms). This can be summarized with the equation:

Growth Rate of Nominal GDP = Growth Rate of Real GDP + Growth Rate of GDP Deflator

Rearranging this formula to find the GDP deflator's growth rate yields:

Growth Rate of GDP Deflator = Growth Rate of Nominal