but show my how ? Problems/Graphs (10 polnts each): Calculate Real Govermment Ex

Question

but show my how ?

Problems/Graphs (10 polnts each): Calculate Real Govermment Expenditure in base year dollars, then calculate real pr capita expenditure (fill m the blanks in the table) Total Govermment Price Real Real Per Capita Index Expenditures Population Expenditutes (millions) $990,144 $1,184 500 (millions) (millions) Year 1 108 240 Year 2 15 250 96, while Between year 1 and year 2, government expenditure increased govemment expenditure increased increased and real government expenditure per capita and I

Explanation / Answer

Relevant Concepts:

1. For any economic statistic, the nominal value means the statistic is measured in terms of actual prices that are in existence at a specified point of time. Correspondingly, the real value refers to the same statistical value post an adjustment for the prevailing level of inflation. The real value is an important indicator of the real progression of a statistical value (growth, degrowth, etc.) which is separate from the inevitable impact of inflation.  

2. Base Year - The base year is any chosen year where the price index level is 100. By adopting this base year, we can use the price index values provided to us to convert the nominal amounts given so that they are measured in the money prevailing in the base year.  

For the required solution:

Step 1: Let us convert the (nominal) government expenditures into real government expenditures in base year dollars.  

Real Exp. = Nominal Exp. / (Price Index / 100)

Year 1 - Real Expenditures (millions) = $990,144 mil / (108 / 100) = $990,144 / 1.08 = $916,800 mil.

Year 2 - Real Expenditures (millions) = $1,184,500 mil / (115 / 100) = $1,184,500 / 1.15 = $1,030,000 mil.

Step 2: Let us calculate the real per capita expenditures

In very simple terms, per capita means an average per person (for statistical purposes, it may also denote an average per specified sample size, per unit of area, etc.). in our question, we have been given the population in millions, so we can calculate the real expenditure per person.  

Real per capita expenditure = Real Government Expenditure (millions) / Population (millions)

Year 1 - $916,800 mil / 240 mil = $3820 per capita / per person

Year 2 - $1,030,000 mil / 250 mil = $4120 per capita / per person

Step 3: Calculating the % change

Between year 1 and year 2, government expenditure increased by 19.629% which is (($1,184,500 - $990,144)/$990,144) x 100., while real government expenditures increased by 12.347% which is (($1,030,000 - $916,800)/$916,800) x 100 and real government expenditure per capita increased by 7.853% which is (($4120-$3820)/$3820) x 100.

This indicates:

1. The difference in the change in nominal government expenditure vs. change in real government expenditure from year 1 to year 2 is primarily attributable to the impact of inflation.  

2. The change in per capita real givernment expenditure is substantially lower than the change in the total real government expenditure from year 1 to year 2, due to the increase in popullation in year 2.  

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