The following table lists hypothetical values 6 Nominal GDP Deflator (baseReal G

Question

The following table lists hypothetical values 6 Nominal GDP Deflator (baseReal GDP (base Pecntage Change GDP Deflator (base Real GDP (base Percentage Change in GDP ear year 2014) 90 92 100 105 110 year = 201 6) 81.8 83.6 90.9 95.5 100 year = 201 4) in Real GDP year-2016) Real GDP 2012 950 2013 1025 2014 1075 2015 1150 2016 1300 in column (7) by calculating real GDP Fill in column (4) by calculating real GDP using the GDP Deflator with a base year of 2014 from column (3). F using the GDP Dflator with a base year of 2016 from column (6) Fill in column (5) by calculating the annual percentage change in real GDP for each year, using the values from column (4), and fill in column (8) by calculating the annual percentage change in real GDP by using the values from column (7) What effect does the change in the base year used to compute real GDP have on your calculations of the percentage change in real GDP?

Explanation / Answer

There is a negligible effect on percentage change in real GDP due to the change in base year in computing real GDP.

Year Nominal GDP GDP Deflator(base year=2014) Real GDP (base year=2014) Percentage change in Real GDP GDP deflator (base year=2016) Real GDP(base year=2016) Percentage change in Real GDP 2012 950 90 1055.6 81.8 1161.4 2013 1025 92 1114.1 5.5 83.6 1226.1 5.6 2014 1075 100 1075.0 -3.5 90.9 1182.6 -3.5 2015 1150 105 1095.2 1.9 95.5 1204.2 1.8 2016 1300 110 1181.8 7.9 100 1300.0 8.0

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