Question

Due Monday, January 21, 2019 1. Nominal and real GDP nying table shows data on nominal GDP (in billions of dollars), real GDP (in bilions of 2007 dollars), and population (in thousands) of Canada in 1966, 1976, 1986, 1996, 2006, and 2016. The Canadian price level rose consistently over the period 1966-2016. Nominal GDP bitlions ofbitions of Population ollans2007 dollar) Chous $64.8 200.0 524.5 8570 $431.9 658.0 19 998 23 414 26 067 29 570 32 520 36 229 1976 1,104.3 2016 2.027.5 1,7962 a. Why is real GDP greater than nominal GDP for all years until 2006 and lower for 2016? b. Calculate the percent change in real GDP from 1966 to 1976, 1976 to 1986, 1986 to 1996, 1996 to 2006, and 2006 to 2016. 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 1966 to 1976, 1976 to 1986, 1986 to 1996, 1996 to 2006, and 2006 to 2016. 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

Real GDP is calculated on the basis of a base period price and nominal GDP is calculated on the basis of current period price. It means real GDP is based on a price level of a fixed period but nominal GDP is calculated on the basis of price of that period.

a) The real GDP in the table is more than the nominal GDP upto the period 2006 because the base period price of real GDP calculation has been taken on 2007 period. It means all the periods real GDP is based on the price of 2007. As the price is rising in every years so 2007 price level is higher than the price level than any other periods before 2007. Therefore any real GDP counted before 2007 will be more than the nominal GDP. For example we can say in 2006 nominal GDP has been calculated on the basis of 2006 price but real GDP of 2006 has been calculated on the basis 2007 price level. As 2007 price level is higher than 2006 price level so real GDP will be higher than nominal GDP. Every real GDP before 2007 will be more than nominal GDP. In 2007 nominal GDP and real GDP will be same and in same reason after 2007 nominal GDP will be more than real GDP.

b)
null