Chapter 8, Problem 14CQ

(a)

To determine

Identify the 2011 and 2012 real GDP.

Explanation of Solution

Table-1 shows the value of nominal GDP and the GDP deflator as follows:

Table-1
	Nominal GDP (Billions of currency)		GDP deflator (2005=100)
Country	2011	2012	2011	2012
U	15,075.7	15,684.8	113.4	115.4
C	1,718.7	1,817.6	115.2	119.7
J	470,623	475,867.9	91.6	91.6
I	1,579.2	1,566.3	112.7	112.7
A	1,444.6	1,488.3	127.4	127.4
UK	1,515.8	1,541.5	117.1	117.1

The real GDP can be calculated using the formula as follows:

$\text{Real GDP}=\frac{\text{Nominal GDP}}{\text{GDP deflator}}\times 100$        (1)

Substitute the respective values in equation (1) to calculate the rea; GDP of country U.

$\begin{array}{c}\text{Real GDP}=\frac{15,075.7}{113.4}\times 100\\ =\text{13,294}\text{.2}\end{array}$

Therefore, the real GDP of Country U in 2011 is $13,294.2 billion.

Table-2 shows the value of the real GDP in 2011 and 2012, which is calculated using Equation-1 as follows:

			Table-2
	Nominal GDP (Billions of currency)		GDP deflator		Real GDP	Real GDP
Country	2011	2012	2011	2012	2011	2012
U	15,075.7	15,684.8	113.4	115.4	13,294.2	1,3591.68
C	1,718.7	1,817.6	115.2	119.7	1,491.92	1,518.46
J	470,623	475,867.9	92.4	91.6	509,332.25	519,506.44
I	1,579.2	1,566.3	110.9	112.7	1,423.98	1,389.79
A	1,444.6	1,488.3	128.1	127.4	1,127.7	1,168.21
UK	1,515.8	1,541.5	115.5	117.1	1,312.38	1,316.39

(b)

To determine

Identify the inflation rate in 2012.

Explanation of Solution

The inflation rate in 2014 can be calculated using the formula as follows:

$\text{Inflation rate}=\left(\frac{{\text{GDP deflator}}_{\text{Current year}}-{\text{GDP deflator}}_{\text{Base year}}}{{\text{GDP deflator}}_{\text{Base year}}}\right)\times 100$        (2)

Use Equation-2 to calculate the inflation rate of Country U in 2014 as follows:

$\begin{array}{c}\text{Inflation rate}=\left(\frac{115.4-113.4}{113.4}\right)\times 100\\ =1.76\end{array}$

Therefore, the inflation rate is 1.76%.

Table-3 shows the value of the inflation rate, which is calculated using Equation-2 as follows:

			Table-3
	Nominal GDP (Billions of currency)		GDP deflator		Real GDP	Real GDP	Inflation rate
Country	2011	2012	2011	2012	2011	2012	2012
U	15,075.7	15,684.8	113.4	115.4	13,294.2	1,3591.68	1.76%
C	1,718.7	1,817.6	115.2	119.7	1,491.92	1,518.46	3.90%
J	470,623	475,867.9	92.4	91.6	509,332.25	519,506.44	-0.86%
I	1,579.2	1,566.3	110.9	112.7	1,423.98	1,389.79	1.62%
A	1,444.6	1,488.3	128.1	127.4	1,127.7	1,168.21	-0.54%
UK	1,515.8	1,541.5	115.5	117.1	1,312.38	1,316.39	1.38%

(c)

To determine

Identify the country that has the highest growth rate of real GDP.

Explanation of Solution

The growth rate can be calculated using the formula as follows:

$\text{Growth rate}=\left(\frac{{\text{Real GDP}}_{\text{Current year}}-{\text{RealGDP}}_{\text{Base year}}}{{\text{RealGDP}}_{\text{Base year}}}\right)\times 100$        (3)

Use Equatrion-3 to calculate the growth rate of real GDP as follows:

$\begin{array}{c}\text{Growth rate}=\left(\frac{13,591.68-13,294.2}{13,294.2}\right)\times 100\\ =2.237\end{array}$

Therefore, the growth rate of real GDP is 2.237%.

Table-4 shows the growth rate in 2012, which is calculated using the Equation-3 as follows:

Table-4
	Nominal GDP		Real GDP				Inflation rate		Growth rate
Country	2011	2012	2011		2012		2012		2012
U	15,075.7	15,684.8	13,294.2		13,591.68		1.76%		2.237%
C	1,718.7	1,817.6	1,491.92		1,518.46		3.90%		1.778%
J	470,623	475,867.9	509,332.25		519,506.44		-0.86%		1.997%
I	1,579.2	1,566.3	1,423.98		1,389.79		1.62%		-2.40%
A	1,444.6	1,488.3	1,127.7		1,168.21		-0.54%		3.592%
UK	1,515.8	1,541.5	1,312.38		1,316.39		1.38%		0.305%

According to Table-4, Country A has the highest growth rate of real GDP, which is 3.592% and Country I has the lowest growth rate of real GDP, which is -2.40%.

(d)

To determine

Identify the countries that have the highest and lowest inflation rate.

Explanation of Solution

According to Table-3, Country C has the highest inflation rate, which is 3.90% and Country J has the lowest inflation rate, which is -0.86%.

(e)

To determine

Identify the country that has the most inflation

Explanation of Solution

According to the data from Table-4, Country C has the highest inflation rate, which is 3.90%. Therefore, Country C has the most inflation during 2012.

Economics Concept Introduction

Inflation: Inflation is a sustained rise in the price level of a selected basket of goods and service for a particular period.