Look at the following data for a small, faraway country with white sand beaches

Question

Look at the following data for a small, faraway country with white sand beaches and swaying palm trees, whose currency is the Clamshell (Cl). Calculate its real GDP for each year and the percentage change in real GDP for 2015-to-2016 and 2016-to-2017. (4 points)

        Year Nominal GDP                 Price Index (2016=100)        Real GDP        % change

        2015 Cl 100,000,000                        90                           _________     N/A

        2016 Cl 120,000,000                         100                         _________        _______

        2017 Cl 135,000,000                         125                         _________     _______

Explanation / Answer

Real GDP, year N = (Nominal GDP / Price Index, year N) x 100

2015: (100,000,000 / 90) x 100 = 111,111,111.11

2016: (120,000,000 / 100) x 100 = 120,000,000

2017: (135,000,000 / 125) x 100 = 108,000,000

% Change in 2016 = (120,000,000 / 111,111,111.11) - 1 = 1.08 - 1 = 0.08 = 8%

% Change in 2017 = (108,000,000 / 120,000,000) - 1 = 0.9 - 1 = -0.1 = -10%

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