Question

Suppose that, in year 1, an economy produces 100 golf balls that sell for $3 each and 75 pizzas that sell for $8 each. The next year, the economy produces 110 golf balls that sell for $3.25 each and 80 pizzas that sell for $9 each. The growth rate of nominal GDP from year 1 to year 2 is _____%.

Answer 1

Answer:

The growth rate in nominal GDP is 19.72%

Explanation:

Nominal GDP is the value of goods and services produced in an economy in a particular year and it is not adjusted for inflation.

Nominal GDP Year 1 = 100 * 3 + 75 * 8 = $900

Nominal GDP Year 2 = 110 * 3.25 + 80 * 9 = $1077.5

The growth rate in nominal GDP can be calculated by using the following formula,

Growth rate = (Nominal GDP Year 2 - Nominal GDP Year 1) / Nominal GDP Year 1

Growth rate in GDP = (1077.5 - 900) / 900  =  0.1972 or 19.72%