Year Real GDP GDP deflator 1975 1231 125.8 1980 1475 178.4 1981 1512 195.6 1982

ID: 1227842 • Letter: Y

Question

Year Real GDP GDP deflator

1975 1231 125.8

1980 1475 178.4

1981 1512 195.6

1982 1480 207.4

1983 1534 215.3

A) The increase in nominal GDP between 1975 and 1980 was approximately

a. 20 percent

b. 14 percent

c. 70 percent

d. $244 billion

B) If the price index measures the price level at the end of the year then the inflation rate in 1981 was approximately equal to

a. 9.6 percent

b. 1.6 percent

c. 6 percent

d. 11.8 percent

C) Which year does the data clearly reveal to be a recession year?

a. 1975

b. 1980

c. 1981

d. 1982

Nominal GDP = Real GDP x GDP Deflator / 100

(A) (c)

Nominal GDP, 1975 = 1,231 x 125.8 / 100 = 1,548.6

Nominal GDP, 1980 = 1,475 x 178.4 / 100 = 2,631.4

Growth in nominal GDP = (2,631.4 / 1,548.6) - 1 = 1.6992 - 1 = 0.6992 = 69.92% ~70%

(B) (a)

Inflation, 1980 = (GDP Deflator, 1981 / GDP Deflator, 1980) - 1 = (195.6 - 178.4) - 1 = 1.096 - 1 = 0.096

= 9.6%

1982 is the only year when real GDP has decreased.

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