Suppose the nation of Guilder has the consumer spending, investment, government

Question

Suppose the nation of Guilder has the consumer spending, investment, government spending, exports, imports, previous year's CPI and population given below. What is its real GDP per capita? Show your work and explain why adjusting for inflation and population are important in order to compare the GDPs of different nations. Government Spending: $50 billion Business Investment: $80 billion Consumer Spending: $120 billion Exports: $60 billion Imports: $10 billion Last year's CPI: 90 This year's CPI:81 Population: 13.5 million

Explanation / Answer

Nominal GDP = Govt Spending + Consumer Spending + Business Investment + (Exports - Imports)

= $ 50 + $ 120 + $ 80 + (60 - 10) = $ 300 Billion

Decrease in inflation = (90-81)/90 = 10%

Real GDP = $ 300 Billion / 0.9 = $ 333.33 Billion

Real GDP per capita = $ 333.33 Billion / 13.5 million = $ 24691.11

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