Question

Part 1

Between 2015 and 2016, the country of West Fredonia experienced a growth rate of -2.6%. If nominal GDP had increased by 1.3% and the population growth was recorded as 0.4%, then calculate the annual inflation rate in West Fredonia. Give your answer to one decimal._____________    %

Part 2

Year	Nominal GDP (billions of current $)	Inflation rate	Population (millions)
2014	3754	2%	117
2015	3898	3%	120
2016	3919	1%	124

Using the information in the table above, calculate economic growth for 2015. Give your answer to two decimal places.
__________    %

Answer 1

Solution:-

Part:-1

Calculate Annual inflation rate:-

Growth rate = Growth rate of nominal GDP - annual inflation rate - population growth rate

-2.6% = 1.3% - annual inflation rate – 0.4%

-2.6% = 0.9% - annual inflation rate

Annual inflation rate = 2.6% + 0.9% = 3.5%

Part:-2

Nominal GDP Growth rate = (3898 - 3754) / 3754

                        = 144 / 3754

                        = 3.84%

Population Increase Rate = (120 - 117) / 117

                         = 3 / 117

                         = 2.56

Economic Growth Rate = 3.84 - 2.56 - 3

                     = -1.72