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Table 1.1 for question 2 a Chapter 1 1. Go to www.bea.gov to find the latest qua

ID: 1145851 • Letter: T

Question

Table 1.1 for question 2 a
Chapter 1 1. Go to www.bea.gov to find the latest quarterly report on GDP to answer these questions: a. What is the latest quarterly estimate of nominal GDP? Of real GDP? Explain why nominal and real differ b. What was the rate of economic growth in the most recent quarter (compared to the previous quarter, compared to year ago)? c. Using nominal and real GDP data, show how you can calculate the rate of inflation in the most recent quarter. Using the most recent quarterly GDP data from bea.gov, find Nominal GDP (), Consumption (C), Gross Investment (1), Government spending (G), and Net Exports (NX). 2. a. Find C/Y, I/Y, G/Y and NX/Y. Compare these percentages to those in Table 1.1. Which ones have risen? Which ones have declined? Which ones are about the same?

Explanation / Answer

Answer 1:

The United States nominal GDP for the third quarter of 2017 was $19.501 trillion and real GDP was $17.164 trillion. Nominal GDP calculates the value of production at market rates while real GDP adjusts the production value for inflation. When the value is adjusted for inflation, it will be lower as compared to market rates. Thus, most of the time real GDP is lower than nominal GDP of the country. However, during the time of Great Recession when inflation rate was negative due to fall in aggregate demand of the country real GDP was higher than nominal GDP. But since the economy has recovered from recession, thus, nominal GDP now is lower than real GDP.

b. The U.S. GDP growth rate was 3.2 per cent for third quarter of 2017. The figures in the past show that this level of growth is sustainable.

c. Using nominal and real GDP of the economy, rate of inflation can be calculated using GDP deflator. The GDP deflator = Nominal GDP / Real GDP * 100 = 1.14 per cent. Thus, inflation rate for the third quarter of 2017 = 1.14 per cent.

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