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12 January, 15:27

Below are nominal GDP and GDP deflators for four years. Year Nominal GDP (in billions) GDP Deflator Year 1 $19,000 100 Year 2 19,560 102 Year 3 20,495 105 Year 4 21,280 106 a. Calculate real GDP in each year. Instructions: Round your responses to the nearest whole number. GDP in Year 1: $ 190 billion GDP in Year 2: $ 192 billion GDP in Year 3: $ 195 billion GDP in Year 4: $ 201 billion b. Did the percentage change in nominal GDP exceed the percentage change in real GDP in any of the last three years listed? Year 2: Year 3: Year 4: c. In which year did society's welfare increase the most?

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  1. 12 January, 15:40
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    In the 4th year the society welfare increased the most.

    Year 2: 19,560 / 1.02 = 19,176.47 Real GDP

    Year 3: 20,495 / 1.05 = 19,519.05 Real GDP

    Year 4: 21,280 / 1.06 = 20,075.47 Real GDP

    Explanation:

    To calcualte the real GDP per year we haveto divide each year by the deflactor

    Year 2: 19,560 / 1.02 = 19,176.47 Real GDP

    Year 3: 20,495 / 1.05 = 19,519.05 Real GDP

    Year 4: 21,280 / 1.06 = 20,075.47 Real GDP

    Increase per year

    Real GDP over previous year GDP

    Year 2: 19,176.47 / 19,000.00 - 1 = 0.93%

    Year 3: 19,519.05 / 19,176.47 - 1 = 1.79 %

    Year 4: 20,075.47 / 19.519.05 - 1 = 2.85%
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