Question

A- The Bureau of Economic Analysis (BEA) calculates nominal and real GDP for the United States. Currently, it uses 2012 as the base year. Based on this information alone, what could you say about the relationship between nominal and real GDP for 2012 for the United States? (2 points)

B- In 2018, nominal GDP was approximately 20.5 trillion and GDP deflator was approximately 110 . In 2019, nominal GDP was approximately 21.5 trillion and GDP deflator was approximately 112. Calculate real GDP for 2018 and 2019 using two decimal places (4 points).

C- Based on the information given/calculate in A and B above, calculate the percentage growth for the US economy from 2018 to 2019. (2 points)

D- Explain what your answer in C above means. (Make up a growth rate and answer this question if you don't know how to calculate C). (4 points)

Answer 1

A. Since, the base year is 2012, the nominal GDP calculated will be equal to the real GDP of year 2012. The logic is simple, the fixed price here is equal to the current price.

B. GDP Deflator = (Nominal GDP/Real GDP)*100

For 2018:

110= (20.5 trillion/Real GDP)*100

--> Real GDP'18 = 18.63 trillion

For 2019:

112 = (21.5 trillion/ Real GDP)*100

--> Real GDP'19 = 19.20 trillion

C. Percentage growth rate in US economyduring 2018-2019 = (Real GDP'19 - Real GDP'18) ÷ Real GDP × 100

= (19.20-18.63)÷ 18.63 × 100

= 3.06 %

D.

1. The growth rate is always calculated on the basis of real GDP of an economy because it makes the GDPs of different years comparable. Nominal GDP will show biased results.
2. GDP is the most used indicator of growth used by all the economies including US.