Question

Year	Pizza		Soda
	Quantity	Price	Soda	Price
2016	15	$11.00	22	$2.00
2017	18	$12.00	23	$3.00
2018	20	$13.00	25	$2.50

1. Refer to Table above. Estimate Nominal GDP for 2017.
2. Refer to Table above. Using 2016 as the base year, estimate real GDP for 2017.
3. Refer to Table above. Estimate the GDP deflator in 2017
4. Why do economists estimate nominal and real GDP?
5. List three things that are not included in the GDP estimation.

6. Using the GDP explain, what is economic growth?
7. What do you mean by GDP per capita?

Assume that the following is the approximate estimation of GDP and population for three GCC countries. 1 bn = 1,000 mn.

2019	Kuwait	Qatar	Saudi Arabia
Current GDP (US$ bn)	135.7	163.5	640.3
Population (mn)	4.8	2.8	34.2

8. Using the table above estimate Kuwait’s GDP per person?

Answer 1

Nominal GDP for 2017 = output in 2017*prices in 2017

= 18*12 + 23*3

= $285

Real GDP for 2017 = output in 2017*prices in 2016 (as 2016 is the base year)

= 18*11 + 23*2

= $244

GDP deflator in 2017 = (Nominal GDP in 2017 / Real GDP in 2017)*100 = (285/244)*100 = 116.80

Nominal GDP and real GDP help economist understand how the income is growing in the country and form policy accordingly. Real GDP is the commonly used macroeconomic estimate as it does not reflect the increase in prices and thus any increase in GDP is due to the actual increase in production.

Things not included in GDP are:

(1) Valur of intermediate goods

(2) Transactions in the second hand market

(3) Goods produced abroad and consumed by our country (imports)

GDP growth refers to the growth of output in an economy from one period to the next. It can be calculates as :

GDP Growth (t) = ((Real GDP (t) - Real GDP (t-1)) / Real GDP(t-1))*100

GDP per capita is the total GDP of the country divided by its population

Kuwait's GDP per person = 135700/4.8 = 28270.83