(Part A) Suppose nominal GDP in 2012 was $200 billion, and in 2014, it was $210

Question

(Part A) Suppose nominal GDP in 2012 was $200 billion, and in 2014, it was $210 billion. The general price index in 2012 was 100 and in 2014 it was 105. Between 2012 and 2014, the real GDP rose by what percent? (20 points) (Part B) Use the following scenario to answer the questions (Part B1) and (Part B2). In a given year in the United States, the total number of residents is 150 million, the number of residents under the age of 16 is 38 million, the number of institutionalized adults is 15 million, the number of adults who are not looking for work is 17 million, and the number of unemployed is 4 million. (Part B1) Refer to the data in the above scenario. What is the size of the labor force in the United States for the given year? (5 points) (Part B2) Refer to the data in the above scenario. What is the unemployment rate in the United States for the given year? (5 points)

Explanation / Answer

Part A:

First, we need to adjust the 2014 GDP to 2012 prices.

Since nominal GDP = P x real GDP, we can convert nominal GDP to real GDP using the formula

real GDP = nominal GDP/P.

So we have: 210/1.05= 200

To calculate the change in GDP, we divide the different in the GDP by the first year's GDP.

Thus we have $200 - $200/ $200 = 0

Therefore, there is no increase in GDP.

Part B:

B1: The size of the labor force = 150 - 38 -15 - 17 = 80 millions

B2: unemployment rate = 4/80 x 100 = 5%

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