Question

Suppose that nominal GDP was $9750000.00 in 2005 in Orange County California. In 2015, nominal GDP was $11250000.00 in Orange County California. The price level rose 1.00% between 2005 and 2015, and population growth was 4.50%.

Calculate the following figures for Orange County California between 2005 and 2015. Give all answers to two decimals.

a. Nominal GDP growth was    %.

b. Economic growth was %.

c. Inflation was       %.

d. Real GDP growth was %.

e. Per capita GDP growth was     %.

f. Real per capita GDP growth was %.

Answer 1

Nominal GDP growth rate refers to the rate at which nominal GDP changes from one year to the next year.

Given that,

Nominal GDP in 2005 = $9,750,000

Nominal GDP in 2015 = $11,250,000

Rise in price level between 2005 and 2015 = 1.00%

Population growth rate = 4.50%

Nominal GDP growth rate:

= [(Nominal GDP in 2015 - Nominal GDP in 2005) ÷ Nominal GDP in 2005] × 100

= [($11,250,000 - $9,750,000) ÷ $9,750,000] × 100

= ($1,500,000 ÷ $9,750,000) × 100

= 0.1538 × 100

= 15.38%

Economic growth rate refers to the rate at which an economy is producing goods and services at a particular point of time.

Economic growth:

= [(Nominal GDP in 2015 ÷ Nominal GDP in 2005) - 1] × 100

= [($11,250,000 ÷ $9,750,000) - 1] × 100

= (1.1538 - 1) × 100

= 15.38%

Inflation rate tells us the percentage by which the price level is changing from period to period.

Therefore, Inflation rate is 1.00%

Real GDP

1st method -- Real GDP is (Nominal GDP)/(GDP deflator)

As Inflation rate =1% , GDP deflator =1.01

real GDP 2005 = 9750000/1 =$ 9750000

Real GDP 2015 = 11250000/1.01 = $ 11138613.86

From here we can calculate Teal GDP growth rate%

2nd method -- % change in real GDP = % Change in Nominal GDP - % Change in prices

= 15.38 - 1 = 14.38

Real GDP growth was 14.38%

GDP growth rate per capita = GDP growth rate - population growth rate

= 14.38 - 4.50 = 9.88%

GDP per capita growth rate was 9.88%