Question

Below are nominal GDP and GDP deflators for four years. Year Nominal GDP (in billions) GDP Deflator Year 1 $19,000 100 Year 2 19,560 102 Year 3 20,495 105 Year 4 21,280 106 a. Calculate real GDP in each year. Instructions: Round your responses to the nearest whole number. GDP in Year 1: $ 190 billion GDP in Year 2: $ 192 billion GDP in Year 3: $ 195 billion GDP in Year 4: $ 201 billion b. Did the percentage change in nominal GDP exceed the percentage change in real GDP in any of the last three years listed? Year 2: Year 3: Year 4: c. In which year did society’s welfare increase the most?

Answer 1

Answer:

In the 4th year the society welfare increased the most.

Year 2:  19,560 /1.02 =   19,176.47 Real GDP

Year 3: 20,495 / 1.05 =  19,519.05 Real GDP

Year 4: 21,280 /  1.06 = 20,075.47 Real GDP

Explanation:

To calcualte the real GDP per year we haveto divide each year by the deflactor

Year 2:  19,560 /1.02 =   19,176.47 Real GDP

Year 3: 20,495 / 1.05 =  19,519.05 Real GDP

Year 4: 21,280 /  1.06 = 20,075.47 Real GDP

Increase per year

Real GDP over previous year GDP

Year 2:  19,176.47  / 19,000.00  - 1 =  0.93%

Year 3: 19,519.05   / 19,176.47   - 1 =   1.79 %

Year 4: 20,075.47 / 19.519.05   - 1 =   2.85%