Brief Principles of Macroeconomics...
Solutions
Brief Principles of Macroeconomics...
Consider the following data on U.S. GDP:
| Year | Nominal GDP in billions of dollars) | GDP Deflator (base year 2009) |
| 2014 | 17,419 | 108.3 |
| 1994 | 7,309 | 73.8 |
- a. What was the growth rate of nominal GDP between 1994 and 2014? (Hint: The growth rate of a variable X over an N-year period is calculated as 100 × [(Xfinal/Xinitial)1/N – 1].)
b. What was the growth rate of the GDP deflator between 1994 and 2014?
c. What was real GDP in 1994 measured in 2009 prices?
d. What was real GDP in 2014 measured in 2009 prices?
e. What was the growth rate of real GDP between 1994 and 2014?
f. Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP? Explain.
Sub part (a):
Growth rate of nominal GDP.
The GDP will be calculated by multiplying the quantity of goods and services produced with the current year market prices which will include the inflation impact. Here, the given table represents the Nominal GDP and the GDP deflator as follows:
| Year | Nominal GDP (billions) | GDP Deflator (base year: 2009) |
| 2014 | $17,419 | 108.3 |
| 1994 | $ 7,309 | 73.8 |
The growth rate of Nominal GDP from 1994 to 2014 can be calculated by the given equation as follows:
Sub part (b):
Growth of GDP deflator.
Sub part (c):
Real GDP.
Sub part (d):
Real GDP.
Sub part (e):
Growth of real GDP.
Sub part (f):
The nominal and real GDP and inflation.
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