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.

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