Question

(1) (5 pts) What are the differences between nominal GDP and real GDP? (2) (5 pts) Suppose the real GDP in 2016 is 1 trillion dollar and the real GDP in 2017 is 1.2 trillion dollar, what is the growth rate of the real GDP from 2016 to 2017? (3) (5 pts) Suppose the nominal GDP growth rate is 15% from 2016 to 2017, what is the inflation rate measured by the GDP deflator,(i.e. inflation rate)?

Answer 1

1.

ASPECTS	NOMINAL GDP	REAL GDP
MEANING	GOODS PRODUCED WITHIN THE COUNTRY DURING THE PARTICULAR ECONOMIC PERIOD.	GOODS PRODUCED WITHIN THE COUNTRY USING THE CONSTANT PRICE I.E THE BASE YEAR PRICE IS MULTIPLIED.
MEASURES	IT IS MEASURED USING THE CURRENT YEAR PRICE LEVEL	IT IS MEASURED USING THE BASE YEAR PRICE LEVEL.
INFLATION (OR) DEFLATION	HERE, NOMINAL GDP IS TAKING CURRENT YEAR PRICES. THERE IS UNADJUSTED INFLATION	IN REAL GDP THE BASE YEAR PRICE IS CONSIDERED THERE IS PURE SCOPE OF INFLATION EFFECT WHERE THE VALUE IS ADJUSTED ACCORDINGLY
FORMULA	QUANTITY OF OUTPUT PRODUCED WITHIN THE CURRENT ECONOMIC PERIOD * PRICE DURING THE YEAR	QUANTITY OF OUTPUT PRODUCED DURING THE YEAR * BASE YEAR PRICE

2.

HERE REAL GDP OF 2016 IS = 1 TRILLION DOLLAR

REAL GDP OF 2017 IS = 1.2 TRILLION DOLLAR

GROWTH RATE = CHANGE IN THE GDP LEVEL / BASE YEAR GDP *100

= (1.2-1) / 1 *100 (TRILLION DOLLAR)

= 0.2 *100

= 20%

3.

GDP DEFLATOR = NOMINAL GDP / REAL GDP *100

= 15/20 *100

75%