Question

A.) Suppose that country X has current GDP of $7250 billion. The current GDP deflator is 130. In the base year, the nominal GDP for country X was also $7250 billion.

What is country current X’s real GDP in base year prices? What is the rate of economic growth between the base year and the current year?

B.) Let us imagine that there is a country which displays the following statistics. C (Consumption) is one-half of GDP, and I (Investment) is one-sixth of GDP. G (Government expenditure) is $2000 larger than investment. The country has a trade deficit of $700. What is the country's GDP?

Answer 1

A) Nominal GDP in base year = Real GDP in base year = $7,250 billion

Nominal GDP in current year = $7,250

GDP deflator = 130

Real GDP in current year = 7,250 / 1.30 = 5,576.92

Economic growth using Nominal GDP = 0%

Economic growth using Real GDP = [(5,576.92 - 7,250) / 7,250] * 100 = -22.30%

B) GDP (Y) = Cpnsumption + Investment + Government Spending + Net Exports

Consumption = (1/2)Y

Investment = (1/6)Y

Government spending = (1/6)Y + 2,000

Exports - Imports = -700

Y = (1/2)Y + (1/6)Y + (1/6)Y + 2,000 - 700

0.166Y = 1,300

Y = 7,800