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Question 2 – Growth rate of GDP In 1948 the US GDP was $275B. If the...

Question 2 – Growth rate of GDP

In 1948 the US GDP was $275B. If the US had grown a growth rate of 4% annual, calculate the expected GDP it would achieve in 2015. Compare this value to the actual nominal GDP of 18.0 Tr. What can you say about the growth rate of the US over this time period given your calculation and the actual GDP measure?

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Answer #1

According to the given rate of 4%, the GDP in 2015 would have been = 275B(1 + 4%)^(2015 - 1948) = $3.806 trillion

Yet we see that the actual GDP turned out to be $18 trillion, almost 5 times the computed value. It therefore implies that the growth rate was not 4% but was greater than this number, precisely

18 T = 275B(1+r%)^67

r = (18/0.275)^^(1/67) = 6.44%

There were expansions and recessions which both speeded up as well as slowed down the growth rate but overall the growth rate was higher than 6%.

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