A country’s Nominal Gross Domestic Product rose from $300 billion in 1980 to $56

Question

A country’s Nominal Gross Domestic Product rose from $300 billion in 1980 to $560 billion in 1990. During the same period, the country’s Price Index (2000=100) rose from 60 to 70. a. What is the percentage increase in nominal GDP over the decade? b. By how much have average prices, measured by the Price Index, risen over this period. c. Calculate GDP for 1980 and 1990 expressed in 2000 dollars. d. Is the percentage change of GDP in constant dollars greater or less than the percentage change in current dollars? Show your calculations.

Explanation / Answer

a. percentage increase in nominal GDP over the decade = (560-300)/300*100 = 86.66%

b. Increase in price level = (70 - 60)/60*100 = 16.66

c. GDP for 1980 in 2000 dollars = $300*100/60 = $500 billion

GDP for 1990 in 2000 dollars = $560*100/70 = $800 billion

d. percentage change of GDP in constant dollars = (800 - 500)/500*100 = 60%

So since % change in case of constant dollar is 60% while in case of nominal GDP it was 86.66%,

SO, the percentage change of GDP in constant dollars less than the percentage change in current dollars.

If you don't understand anything then comment, I'ill revert back on the same. :)

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