Question

Reference equation: Real GDP per capita growth rate = Nominal GDP per capita growth rate - Inflation rate - Population growth rate

This equation is an approximation of the exact rate of growth of GDP per capita, and so it results in some errors when calculating this rate. However, the simplified equation both is easy to use and results in small error terms when inflation, nominal GDP growth, and population growth are low, and so it is a useful approximation. The table below lists a fictional country's nominal GDP, real GDP, GDP deflator, and population over two years.

Year	Noninal GDP	CDP def1ator	Real GDP(2015 dollars)	Population
2015	$1,000,000	100	$1,000,000	1,000
2016	$1,050,000	102	$1,029,412	1,005

a. Verify that the real GDP values in the above table are accurate.

Instructions: Round your answers to one decimal place.

b. This country's real GDP per capita for 2015 is

This country's real GDP per capita for 2016 is

c. The growth rate in this country's real GDP per capita between 2015 and 2016 is

d. The growth rate in nominal GDP between 2015 and 2016 is

The growth rate in the GDP deflator between 2015 and 2016 is

The growth rate in the population between 2015 and 2016 is

Answer 1

Solution:-

a). The table contains correct real GDP values, as may be verified from the calculation below:-

Real GDP of 2015 = Nominal GDP of 2015 / GDP Deflator of 2015 * 100

                 = $1,000,000 / 100 * 100

                 = $1,000,000

Real GDP of 2016 = Nominal GDP of 2016 / GDP Deflator of 2016 * 100

                 = $1,050,000 / 102 * 100

                 = $1,029,411

b) Real GDP per capita of 2015 = Real GDP of 2015 / Population in 2012

                               = $1,000,000 / 1000

                               = $1000

Real GDP per capita of 2015 = Real GDP of 2015 / Population in 2012

                            = $1,029,412 / 1005

                            = $1024

c).Growth Rate of Real GDP Per Capita = Real GDP of 2016 - Real GDP of 2015 / Real GDP of 2015 * 100

= 1024 – 1000 / 1000 * 100

= 24 / 1000 *100

= 2.4%

d).

Growth Rate of Nominal GDP Per Capita = Nominal GDP of 2016 - Nominal GDP of 2015 / Nominal GDP of 2015 * 100

                                      = 1,050,000 - 1,000,000 / 1,000,000 * 100

                                      = 0.05 * 100

                                      = 5%

The growth rate of GDP Deflator = GDP Deflator of 2016 - GDP Deflator of 2015 / GDP Deflator of 2015 * 100

                            = 102 - 100 / 100 * 100

                            = 2 / 100 * 100

                            = 2%

Growth Rate of Population = Population in 2016 - Population in 2015 / Population in 2015 * 100

                          = 1005 - 1000 / 1000 * 100

                          = 0.005 * 100

                          = 0.5%