Question

The accompanying table shows data on nominal GDP (in billions of dollars), real GDP (in billions of 2009 dollars), and population (in thousands) of the United States in 1965,1975,1985,1995,2005, and 2015 . The U.S. price level rose consistently over the period 1965-2015.

Year	Nominal GDP (billions of dollars)	Real GDP (billions of 2009 dollars)	Population (thousands)
1965	$743.7	$3,976.7	194,250
1975	1,688.9	5,385.4	215,891
1985	4,346.7	7,593.8	238,416
1995	7,664.1	10,174.8	266,458
2005	13,093.7	14,234.2	296,115
2015	17,947.0	16,348.9	321,601

a. Why is real GDP greater than nominal GDP for all years until 2005 and lower for 2015 ?

b. Calculate the percent change in real GDP from 1965 to 1975,1975 to 1985,1985 to 1995,1995 to 2005 , and 2005 to 2015. Which period had the highest growth rate?

c. Calculate real GDP per capita for each of the years in the table.

d. Calculate the percent change in real GDP per capita from 1965 to 1975,1975 to 1985,1985 to 1995,1995 to 2005, and 2005 to 2015 . Which period had the highest growth rate?

e. How do the percent change in real GDP and the percent change in real GDP per capita compare? Which is larger? Do we expect them to have this relationship?

Answer 1

a. Real GDP is higher than nominal GDP from 1965-2005 as the real GDP has been adjusted for inflation in 2009. Hence even though nominal GDP is lower during that time period Real GDP ehny adjusted for 2009 inflation is much higher. For 2015 since we are adjusting for inflation in 2009 real GDP is much lower as the real value of GDP in 2009 of 2015 nominal GDP will be lower by the inflation difference between two years

b. 1965-75 =(5385.4-3976.7)/3976.7*100=35.42%

1975-85 =(7593.8-5385.4)/5385.4*100=41.01%

1985-95 =(10174.8-7593.8)/7593.8*100=35.99%

1995-05=(14234.2-10174.8)/10174.8*100=39.9%

2005-15 =(16348.9-14234.2)/14234.2=14.86%

Year 1975-85 has the Highest growth rate

c. Real GDP per Capital

65- 3976.7/194.25 thousand=$20,472

75-5385.4/215.891 thousand=$24,945

85-7593.8/238.416 thousand= $31,851

95-10174.8/266.458 thousand= $38,185

05-14234.2/296.115 thousand= $48,069

15- 16358.9/321.601 thousand= $50,867

d.1965-75=(24945-20472)/20472*100=21.85%

1975-85=(31851-24945)/24945*100=27.68%

1985-95=(38185-31851)/38185*100 =19.89%

1995-05=(48069-38185)/38185*100= 25.88%

2005-15= (50867-48069)/48069*100= 5.82%

Hence year 1975-85 saw highest gdp per capital growth