4. (5 points). Go to the St. Louis Federal Reserve (FRED) database (https://fred

Question

4. (5 points). Go to the St. Louis Federal Reserve (FRED) database (https://fred stlouisfed.or) and find the most recent values and values from one year earlier, for nominal GDP (GDP) and real GDP (GDPC1) (a) Compute the GDP deflator for the most recent period and for one year prior to the most (b) Using your answers to part (a) above, calculate the year-over-year inflation rate over the last (c) Calculate the growth rate in real GDP and the growth rate in nominal GDP over the same one- recent period. year. year period. How do these values relate to your answer in part (b) above?

Explanation / Answer

For the US, the nominal GDP for 2Q18 was $20.41 trillion and the real GDP for 2Q18 was $18.51 trillion.

Further, for 2Q17, US nominal GDP was $19.36 trillion and real GDP for 2Q17 was $17.99 trillion.

Answer A.

GDP deflator for most recent period (2Q18) = (Nominal GDP/Real GDP)*100

= (20.41/18.51)*100 = 110.26

GDP deflator for prior year period (2Q17) = (Nominal GDP/Real GDP)*100

= (19.36/17.99)*100 = 107.62

Answer B. Year-on-Year inflation = (Current Year GDP Deflator/Base Year GDP deflator)/Base Year

= (110.26-107.62)/107.62 = 2.46%

Answer C. Nominal GDP growth in 2Q18 as compared to 2Q17 = (20.41-19.36)/19.36 = 5.4%

                Real GDP Growth in 2Q18 as compared to 2Q17 = (18.51-17.99)/17.99 = 2.9%

The relation with answer in part B is -:

Nominal GDP growth = Real GDP growth + Inflation Calculated

= 2.9% + 2.4%

= 5.4%

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