Q7. The following table shows nomina... [FREE SOLUTION]

Chapter 7: Q7. (page 153)

The following table shows nominal GDP and an appropriate price index for a group of selected years. Compute real GDP. Indicate in each calculation whether you are inflating or deflating the nominal GDP data.

Expert verified

$R e a l G D P = \frac{N o m i n a l G D P}{P r i c e I n d e x} R e a l G D P_{1978} = \frac{2293.8}{40.40} = $ 56.777$

Since the real GDP is lower than the nominal GDP, the nominal GDP is deflated.

$R e a l G D P = \frac{N o m i n a l G D P}{P r i c e I n d e x} R e a l G D P_{1978} = \frac{2293.8}{40.40} = $ 56.777$

Since the real GDP is lower than the nominal GDP, the nominal GDP is deflated.

$R e a l G D P_{1988} = \frac{5100.4}{66.98} = $ 76.148$

The lower real GDP as compared to nominal GDP indicates that the nominal GDP is deflated.

$R e a l G D P_{1998} = \frac{8793.5}{82.51} = $ 102.836$

The comparative decrease in real GDP and nominal GDP shows that the nominal GDP is deflated.

$R e a l G D P_{2008} = \frac{14, 441.4}{108.48} = $ 133.125$

The increase in price level lowers the real GDP from the nominal GDP value, proving that the nominal GDP is deflated.

$R e a l G D P_{2018} = \frac{20, 501}{128.59} = $ 159.429$

The nominal GDP is deflating because the increasing price level lowers the real GDP.

Unlock Step-by-Step Solutions & Ace Your Exams!

Over 30 million students worldwide already upgrade their learning with 91影视!

All the tools & learning materials you need for study success - in one app.