4. Putting all these concepts together: (40 points) a. Calculate GDP. (These are

Question

4. Putting all these concepts together: (40 points) a. Calculate GDP. (These are in terms of Sbillions.) Transfer payments Government purchases Personal taxes $35 $76 $44 Personal consumption expenditures$652 $22 $39 $82 $793 U.S. Exports Imports to U.S Gross private domestic investment GDP If we use consider the calculated GDP from part a. to be GDP in year 1, and nominal GDP in year 2 is $954 billion, what is Real GDP in year 2? (Consider the Price Index in year 2 to be 104, or 1.04.) If population is 6,234,000 in year 1 and 6,500,000 in year 2, calculate the Real GDP per capita in both years. What is the growth rate in Real GDP and Real GDP per Capita? What section of the business cycle are we in? b. c. d. e.

Explanation / Answer

b)

Deflator= Nominal GDP/Real GDP

Nominal GDP in year 2- $954 billion

Let real GDP be X

954/x=1.04

x= $917.31 billion

Therefore, real GDP in year 2= $917.31 billion

c. Real GDP in year 1= $793 billion

Population in year 1=6,234,000

Real GDP per capita in year 1=793,000,000,000/6,234,000=$127,205.65

Population in year 1=6,500,000

Real GDP per capita in year 2=$917,310,000,000/6,500,000=$1,411,246.15

d) Growth rate in real GDP=($917.31 billion-$793 billion)/$793 billion=15.68%

Growth rate in real GDP per capita=($1,411,246.15-$127,205.65)/$127,205.65=10.09%

e) Expansion since the Real GDP has increased from year 1 to year 2.

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