Nominal versus Real GDP The table below contains data for real and nominal GDP f

Question

Nominal versus Real GDP
The table below contains data for real and nominal GDP for a fictional country over these years.

Year Nominal GDP( Billions of $) Real GDP ( billlions of 1996$) Implicit GDP deflator

1995    814.1                               838.6                                           ?

1996     862.9                               862.9                                            ?

1997     901.5                               882.5                                            ?

1998      951.3                              920.6                                            ?

1) Compute the implicit GDP deflator for each year. Fill in the last column of the table

2) How much of this change in nominal GDP from 1995 to 1998 was due to increases in prices and how much was due to changes in quantities?

Explanation / Answer

1) Deflator = (nominal/real)*100 97.07846411 100 102.1529745 103.3347817 2) The nominal GDP changed by 951.3 - 814.1 = 137.2. The real GDP changed by 920.6 - 838.6 = 82. So, quantities accounted for 82/137.2 = 60% of the change in nominal GDP and prices accounted for 40% of the change.

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