Question

Given the information in the following table for three consecutive years in the U.S. economy, calculate the missing data.

Year	Nominal GDP (in billions of U.S. dollars)	Real GDP (in billions of 2005 dollars)	GDP Deflator (2005=100)	Inflation (percent change in GDP deflator)	Real GDP per Capita (in 2005 dollars)	Population (in millions)
2005	12,623		100.0	3.3		297.4
2006		12,959		3.2		300.3
2007			106.2		45,542	303.3

Answer 1

YEAR 2005

The GDP deflator in 2005 is 100.

The value of GDP deflator in base year is always 100.

So, 2005 is the base year.

In base year, nominal GDP equals real GDP.

Thus, real GDP in 2005 is $12,623 billion.

Real GDP per capita = Real GDP/Population = $12,623 billion/297.4 million = $42,445

The real GDP per capita in 2005 is $42,445.

YEAR 2006

GDP deflator = GDP deflator in 2005 + Inflation rate in 2006 = 100 + 3.2 = 103.2

The GDP deflator in 2006 is 103.2

Calculate Nominal GDP -

Nominal GDP = (GDP deflator * Real GDP)/100 = (103.2 * $12,959 billion)/100 = $13,374 billion

The nominal GDP in 2006 is $13,374 billion.

Real GDP per capita = Real GDP /Population = $12,959 billion/300.3 million = $43,154

The real GDP per capita is $43,154.

YEAR 2007

Real GDP = Real GDP per capita * Population = $45,542 * 303.3 million = $13,813 billion

The real GDP in 2007 is $13,813 billion.

Nominal GDP = (GDP deflator * real GDP)/100 = (106.2 * $13,813 billion)/100 = $14,669 billion

The nominal GDP in 2007 is $14,669 billion.

Inflation rate = (GDP deflator in 2007 - GDP deflator in 2006)/GDP deflator in 2006

Inflation rate = (106.2 - 103.2)/103.2 = 2.9%

The inflation rate in 2007 is 2.9%.