Question

Consider the following data on U.S. GDP:

Year	Nominal GDP	GDP Deflator
	(Billions of dollars)	(Base year 2009)
2017	19,485	107.95
1997	8,578	74.45

The growth rate of nominal GDP between 1997 and 2017 was _______, and the growth rate of the GDP deflator between 1997 and 2017 was ______. (Hint: The growth rate of a variable XX over an NN-year period is calculated as 100×((XfinalXinitial)(1N)−1)100×XfinalXinitial1N−1)

Measured in 2009 prices, real GDP was ______billion in 1997 and ______billion in 2017. (Note: Select the answers closest to the values you compute.)

The growth rate of real GDP between 1997 and 2017 was________ .

The growth rate of nominal GDP between 1997 and 2017 was _________ than the growth rate of real GDP.

Answer 1

Solution:-

Calculate growth rate of Nominal GDP between 1997 and 2017:-

Growth rate of Nominal GDP = {(X Final/X initial) ^1/N – 1} * 100

                                               = {(19,485 / 8,578) ^1/20 – 1} * 100

                                             = {(2.2715) ^0.05 – 1} * 100

                                          = {1.04187– 1} * 100

                                         = {0.04187} * 100

                                          = 4.187%

Growth rate of GDP Deflator = {(X Final/X initial) ^1/N – 1} * 100

                                          = {(107.95 / 74.45) ^1/20 – 1} * 100

                                             = {(1.449966) ^0.05 – 1} * 100

                                       = {1.01875– 1} * 100

                                           = {0.01875} * 100

                                          = 1.875%

Real GDP in 1997 = Nominal GDP / GDP Deflator

   = 8578 / 74.45

    = 115.218

Real GDP in 2017 = Nominal GDP / GDP Deflator

                          = 19,485 / 107.95

                        = 180.500

Growth rate of Real GDP = {(X Final/X initial) ^1/N – 1} * 100

                                     = {(180.500 / 115.218) ^1/20 – 1} * 100

                              = {(1.566595) ^0.05 – 1} * 100

                                  = {1.022699 – 1} * 100

                                   = {0.022699} * 100

                                 = 2.269%

The growth rate of nominal GDP between 1997 and 2017 was More than the growth rate of real GDP.