Question

Consider the following data on U.S. GDP: Year Nominal GDP GDP Deflator (Billions of dollars) (Base year 2009) 2016 18,707 105.93 1996 8,073 73.181. The growth rate of nominal GDP between 1996 and 2016 was, and the growth rate of the GDP deflator between 1996 and 2016 was ____. 2. The growth rate of a variable X over an N-year period is calculated as 100×((XfinalXinitial)(1N)−1)) Measured in 2009 prices, real GDP was billion in 1996 and billion in 2016. (Note: Select the answers closest to the values you compute.) 3. The growth rate of real GDP between 1996 and 2016 was ____. 4. The growth rate of nominal GDP between 1996 and 2016 was than the growth rate of real GDP.

Answer 1

Year Nominal GDP GDP deflator(in billions of dollars) (base year 2009)

1996 8073 73.81

2016 18707 105.3

Answer and Explanation:

1. Growth rate of nominal GDP =

Difference of nominal GDP from 1996-2000/nominal GDP 1996*100/1

=

2. What was the growth rate of the GDP deflator between 1996 and 2016?

growth rate of the GDP deflator = GDPdeflator 2016 - GDP deflator 1996)/ GDP deflator 1999 x 100

= 105.3- 73.81/73.81x 100

= 0.4424 x 100

= 4.424 %

3. What was the real GDP in 1996 measured in 2009 prices?

Real GDP in 1996= nominal GDP/ GDP deflator in hundreths

GDP deflator in hundreths= 73.81/100 = 1.13

Real GDP in 1999 at 1996 prices = 8073/1.13

= $ 8202754.867 billions

4. What was real GDP in 2016 measured in 2009 prices?

Real GDP= nominal GDP/ GDP deflator in hundreths

GDP deflator in hundreths= 105.3/100 = 1.18

Real GDP in 2016 at 2009 prices = 18707/1.18

= $ 8367049.153 billions

5. What was the growth rate of real GDP between 1996 and 2016?

Growth rate of real GDP from 1996 to 2016 = real GDP 2016 - Real GDP 1996)/ RGDP 1996x 100

= 8367049.153 - 8202754.867 / 8202754.867 x 100

= 0.0200 x100

= 2 %

6. Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP?

Explain

Nominal GDP growth rate is higher than real GDP growth rate rate which is normal since Nominal GDP is calculated using market prices for the year while real GDP is calculated using base year prices.