Part II: Word Problems-SHOW ALL WORK!!! 0.1) Macroeconomic Measurements 50 point

Question

Part II: Word Problems-SHOW ALL WORK!!! 0.1) Macroeconomic Measurements 50 points Year 1910 Year 1920 Year 1930 Year 1940 Year 1950 Table 1 Narnia Nominal GDP (S millions) Narnia GDP deflator (Base year 1935) 743.46816.74 939.35 1015.21 1156.14 78.98087.310 95.725105.996 117.534 Given the information about the Narnia economy in Table 1, calculate the Real GDP growth rate for each stated time interval (Show all work in context.): a) Year 1910 to Year 1920 b) Year 1920 to Year 1930 c) Year 1930 to Year 1940 d) Year 1940 to Year 1950 e) Year 1910 to Year 1950

Explanation / Answer

We know that GDP deflator = (nominal GDP / Real GDP ) * 100

So, GDP deflator for 1910 = (nominal GDP1910 / Real GDP1910 ) * 100

or, Real GDP1910 = (nominal GDP1910 / GDP deflator for 1910 ) * 100

or, Real GDP1910 = (743.46 / 78.980) * 100 = 941.32

similarly, Real GDP1920 = (816.74 / 87.31)*100 = 935.44

Real GDP1930 = (939.35 / 95.72) * 100 = 981.35

Real GDP1940 = (1015.21 / 105.99) * 100 = 957.83

Real GDP1950 = (1156.14 / 117.53 ) * 100 = 983.69

Now, a) real GDP growth rate between 1910 and 1920 = [(Real GDP1920 - Real GDP1910 ) / Real GDP1910] * 100

or, real GDP growth rate between 1910 and 1920 = [(935.44 - 941.32) / 941.32] * 100 = -0.62 %

So GDP growth rate fall by 0.62%.

b) real GDP growth rate between 1920 and 1930 = [(Real GDP1930 - Real GDP1920 ) / Real GDP1920] * 100

or, real GDP growth rate between 1920 and 1930 = [(981.35 - 935.44) / 935.44] * 100 = 4.90 %

So GDP growth rate grew by 4.90%.

c) real GDP growth rate between 1930 and 1940 = [(Real GDP1940 - Real GDP1930 ) / Real GDP1930] * 100

or, real GDP growth rate between 1930 and 1940 = [(957.83 - 981.35) / 981.35] * 100 = -2.39%

So GDP growth rate fall by -2.3%.

d) real GDP growth rate between 1940 and 1950 = [(Real GDP1950 - Real GDP1940 ) / Real GDP1940] * 100

or, real GDP growth rate between 1940 and 1950 = [(983.69 - 957.83) / 957.83] * 100 = 2.69

So GDP growth rate grew by 2.69%.

e) real GDP growth rate between 1910 and 1950 = [(Real GDP1950 - Real GDP1910 ) / Real GDP1910] * 100

or, real GDP growth rate between 1910 and 1950 = [(983.69 - 941.32) / 941.32] * 100 = 4.50%

So GDP growth rate grew by 4.50%.

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