Question

Based on the data in the table below, explain what happened to output and inflation in...

Based on the data in the table below, explain what happened to output and inflation in the hypothetical economy between 1998 and 1999. show all computations.

1998 1999

Nominal GDP ($ billions) $14,700 $15,200

Real GDP ($Billions 1992 chain weighted) $12,100 $11,900

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Answer #1

Nominal GDP has increased during this period, as the data is indicating. However real GDP is reduced. This implies that the percentage change in the nominal GDP is in less than the percentage change in inflation rate due to which the real GDP has reduced. It can be concluded that price level has increased which means there is an increase in the rate of inflation in the economy and at the same time there is a decline in the real GDP.

Percentage change in nominal GDP = (15200 - 14700)/14700 = 3.4%

Percentage change in real GDP = (11900 - 12100)/12100 = -1.65%

Inflation rate = 3.4% - (-1.65%) = 5.05%

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