Question

In: Economics

In the following Table you are given information on Real GDP and Nominal GDP. Compute the...

In the following Table you are given information on Real GDP and Nominal GDP.

Compute the percentage change in Nominal GDP from 1970 to 1980 (15 points) and the percentage change in Real GDP (15 points) from 1970 to 1980.

Year

Nominal GDP

(In Current Prices)

Real GDP

(Base Year 2000 Prices)

1970

4,000

2,000

1980

6,000

4,500

Where do you attribute the difference between the two percentage changes?

Expert Solution

The percentage change in Nominal GDP from 1970 to 1980 = (Nominal GDP in 1980 - Nominal GDP in 1970) / Nominal GDP in 1970 * 100

The percentage change in Nominal GDP from 1970 to 1980 = (6000 - 4000) / 4000 * 100

The percentage change in Nominal GDP from 1970 to 1980 = 2000 / 4000 * 100

The percentage change in Nominal GDP from 1970 to 1980 = 0.5 * 100

The percentage change in Nominal GDP from 1970 to 1980 = 50%

The percentage change in Real GDP from 1970 to 1980 = (Real GDP in 1980 - Real GDP in 1970) / Real GDP in 1970 * 100

The percentage change in Real GDP from 1970 to 1980 = (4500 - 2000) / 2000 * 100

The percentage change in Real GDP from 1970 to 1980 = 1500 / 2000 * 100

The percentage change in Real GDP from 1970 to 1980 = 0.75 * 100

The percentage change in Real GDP from 1970 to 1980 = 75%

Nominal GDP is calculated by = Price in the current year * Quantity in the current year.

Real GDP is calculated by = Price in the base year * Quantity in the current year

Here, the percentage change in Real GDP from 1970 to 1980 is greater than the percentage change in Nominal GDP from 1970 to 1980 as 75% is greater than 50%. This means that price in the current year is lesser than than price in the base year and there is deflation occurring. This is what I attribute to the difference between the two percentage changes.

Rahul Sunny answered 1 year ago

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