Question

1. [4 points] Consider the following data for Canada: GDP deflator, 2016 (base year: 2010): 108.091 GDP deflator, 2017 (base year: 2010): 110.556 GDP, 2016 (current prices): 2,035.5 billion Canadian dollars GDP, 2017 (current prices): 2,144.4 billion Canadian dollars Labor Force, 2017 (millions of people): 19.665 Employment, 2017 (millions of people): 18.421 Interest rate (10-year Government bond yield, annual interest rate, 2017): 1.78% Calculate: (a) the inflation rate for 2017; (b) the real GDP growth rate for 2017; (c) the unemployment rate for 2017; (d) the real interest rate for 2017.

Answer 1

(a)

Inflation rate in 2017 = % Change in GDP deflator from 2016 to 2017 = (110.556 / 108.091) - 1 = 1.0228 - 1 = 0.0228

= 2.28%

(b)

Real GDP = (Current dollar GDP / GDP deflator) x 100

Real GDP, 2016 = (2,035.5 / 108.091) x 100 = 1,883.14

Real GDP, 2017 = (2,144.4 / 110.556) x 100 = 1,939.65

Real GDP growth rate = (1,939.65 / 1,883.14) - 1 = 1.03 - 1 = 0.03

= 3%

(c)

Unemployment rate = (Labor force - Number of people Employed) / Labor force = (19.665 - 18.421) / 19.665 = 1.244/19.665

= 0.0633

= 6.33%

(d)

Real interest rate in 2017 = Nominal interest rate - Inflation rate = 1.78% - 2.28%

= - 0.5%