Answer to Question #143662 in Microeconomics for Bev Jeffries

Question

Nominal gross domestic product for the United States was $7,661.6 billion in 1996 and $8,110.9 billion in 1997. The GDP deflator was 109.5 in 1996 and 1996 and 111.6 in 1997. Given the above data, complete the following questions. Show the work.
1. What was the 1997 real GDP expressed in 1996 prices?
2. What were the 1996 and 1997 GDPs expressed in base-year prices?
3. What was the percent change in the nominal GDP between 1996 and 1997?
4. What was the percent change in real GDP between 1996 and 1997?
5. What was the inflation between 1996 and 1997?

Answer 1

(i) 1997 real GDP expressed in 1996 prices:

GDP for the year 1997 = $8,110.9 billion

GDP deflator in 1996 is 109.5 and in 1997 is 111.6

1997 real GDP expressed in 1996 prices = $8,110.9 / 111.6 x 109.5 = $7,958.27

Answer: $7,958.3 billion

(ii) 1996 GDP expressed in base year prices - $7,661.6 / 109.5 (deflator) x 100 (base year)

1996 GDP expressed in base year prices = $6,996.89 or $6,996.9 billion

1997 GDP expressed in base year prices = $8,110.9 / 111.6 (deflator) x 100

1997 GDP expressed in base year prices = $7,267.83 or $7,267.8 billion

Answer: $6,996.9 billion; $7,267.8 billion.

(iii) Nominal GDP in 1996 = 7,661.6 and in 1997 = 8,110.9

Percentage change in nominal GDP between 1996 and 1997 = (8,110.9 = 7,661.6) / 7,661.6 x 100

Percentage change in nominal GDP between 1996 and 97 = 5.86%

Answer: 5.86%

(iv) Real GDP in 1996 = $6,996.9 billion and real GDP in 1997 = $7,267.8 (Using base year prices)

Percentage change in nominal GDP between 1996 and 1997 = (7,267.8 – 6,996.9) / 6,996.9 x 100

Percentage change in nominal GDP between 1996 and 1997 = 3.87%

Answer: 3.87%

(v) GDP deflator in 1996 = 109.5 and in 1997 = 111.6

The inflation rate (using GDP deflator) between 1996 and 1997 = (111.6 – 109.5) / 109.5 x 100

The inflation rate (using GDP deflator) between 1996 and 1997 = 1.917% or 1.92%

Answer: 1.92%.