Question

Using the table below, make some calculations and answer the questions:

Year Nominal GDP Billions Real GDP Billions

2013 16,691.5 15,612.2

2014 17,393.1 15,982.3

2015 18,036.6 16,397.2

2016 18,569.1 16,662.1

2016 18,569.1 16,662.1

Compute the rate of growth of the economy...

a) Between 2013 and 2014 (2 POINTS)

b) Between 2014 and 2015 (2 POINTS)

c) Between 2015 and 2016 (2 POINTS)

d) Comment briefly on your previous results (use three lines). (2 POINTS)

e) Which one is more important: Nominal GDP or Real GDP? Why? EXPLAIN briefly. (2 POINTS)

Answer 1

D) Hence as per the growth rate evaluation shown above , it can be depicted that Rate of growth rate have slightly flared up in 2015 from 2014 but after the year 2015 to 2016 ,it has eventually dwelled.

E) Nominal GDP measures the value of economy’s total output at the prices prevailing in the period during which output is produced.

On the other hand, real GDP measures the total output produced in any one period at the prices of some base year. This is done to find an estimate of the real change in output during the specified years.While we look at the growth rate of the economy, it is the real GDP which will give us an apt picture of the economy’s growth because it adjusts for any price changes that takes place and calculate outputs at the same base year prices.

A growth in nominal GDP cannot be called as growth in the economy completely because that increase could be due to the increase in prices that happened during that period.

However it is the increase in real GDP that shows the actual growth and can be attributed to factors like increase in productivity, fall in unemployment rate, improvement in technology, efficient use of resources and so on during the time period in consideration.Hence Reald GDP is a better approach