Chapter 8, Problem 14CQ

(a)

To determine

Identify the 2013 and 2014 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 (2010=100)
Country	2013	2014	2013	2014
U	16,663.2	17,348.1	105.6	107.4
C	1,879.5	1,976.2	108.1	110.9
J	482,430	489,623	97.2	98.8
I	1,609.5	1,616.3	103.9	105
A	1,554.8	1,599.8	105.5	105.8
UK	1,713.1	1,791.5	104.3	106

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

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

Use Equation-1 to calculate the real GDP of Country U in 2013 as follows:

$\begin{array}{c}\text{Real GDP}=\frac{16,663.20}{105.6}\times 100\\ =\text{15,779}\text{.54}\end{array}$

Therefore, the real GDP of Country U in 2013 is $15,779.54 billion.

Table-2 shows the value of the real GDP in 2013 and 2014, which is calculated using Equation-1 as follows:

Table-2
	Nominal GDP		GDP deflator		Real GDP
Country	2013	2014	2013	2014	2013	2014
U	16,663.2	17,348.1	105.6	107.4	15,779.5	16,152.8
C	1,879.5	1,976.2	108.1	110.9	1,738.67	1,781.97
J	482,430	489,623	97.2	98.8	496,327	495,570
I	1,609.5	1,616.3	103.9	105	1,549.09	1,539.33
A	1,554.8	1,599.8	105.5	105.8	1,473.74	1,512.10
UK	1,713.1	1,791.5	104.3	106	1,642.47	1,690.09

(b)

To determine

Identify the inflation rate in 2014.

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:

$\begin{array}{c}\text{Inflation rate}=\left(\frac{107.4-105.6}{105.6}\right)\times 100\\ =1.70\end{array}$

Therefore, the inflation rate is 1.70%.

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

Table-3
	Nominal GDP		GDP deflator		Real GDP		Inflation rate
Country	2013	2014	2013	2014	2013	2014	2014
U	16,663.2	17,348.1	105.6	107.4	15,779.5	16,152.8	1.70%
C	1,879.5	1,976.2	108.1	110.9	1,738.67	1,781.97	2.59%
J	482,430	489,623	97.2	98.8	496,327	495,570	1.65%
I	1,609.5	1,616.3	103.9	105	1,549.09	1,539.33	1.06%
A	1,554.8	1,599.8	105.5	105.8	1,473.74	1,512.1	0.28%
UK	1,713.1	1,791.5	104.3	106	1,642.47	1,690.09	1.63%

(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:

$\begin{array}{c}\text{Growth rate}=\left(\frac{16,152.8-15,779.5}{15,779.5}\right)\times 100\\ =0.02365\times 100\\ =2.36\end{array}$

Therefore, the growth rate of real GDP is 2.36%.

Table-4 shows the growth rate in 2014, which is calculated using the Equation-3 as follows:

Table-4
	Nominal GDP		GDP deflator		Real GDP		Inflation rate	Growth rate
Country	2013	2014	2013	2014	2013	2014	2014	2014
U	16,663.2	17,348.1	105.6	107.4	15,779.5	16,152.8	1.70%	2.37%
C	1,879.5	1,976.2	108.1	110.9	1,738.67	1,781.97	2.59%	2.49%
J	482,430	489,623	97.2	98.8	496,327	495,570	1.65%	-0.15%
I	1,609.5	1,616.3	103.9	105	1,549.09	1,539.33	1.06%	-0.63%
A	1,554.8	1,599.8	105.5	105.8	1,473.74	1,512.1	0.28%	2.60%
UK	1,713.1	1,791.5	104.3	106	1,642.47	1,690.09	1.63%	2.90%

According to Table-4, Country UK has the highest growth rate of real GDP, which is 2.90% and Country J has the lowest growth rate of real GDP, which is -0.15%.

(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 2.59% and Country A has the lowest inflation rate, which is 0.28%.

(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 2.59%. Therefore, Country C has the most inflation during 2014.

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.