Consider the following data on Canadian GDP: Year Nominal GDP (in bil

step 1 Once again, welcome to new problems. This time we're dealing with economics and when you talk ab

Consider the following data on Canadian GDP: Year ...

Consider the following data on Canadian GDP: $$\begin{array}{|c|c|c|}\hline \text { Year } & \begin{array}{c}\text { Nominal GDP } \\\text { (in billions) }\end{array} & \begin{array}{c} \text { GDP Deflator } \\\text { (base year }2007)\end{array} \\\hline 2013 & \$ 1893 & 111 \\\hline 2014 & \$ 1975 & 113 \\\hline \end{array}$$ a. What was the growth rate of nominal GDP between 2013 and $2014 ?$ (Note: The growth rate is the percentage change from one period to the next.) b. What was the growth rate of the GDP deflator between 2013 and $2014 ?$ c. What was real GDP in 2013 measured in 2007 prices? d. What was real GDP in 2014 measured in 2007 prices? e. What was the growth rate of real GDP between 2013 and $2014 ?$ f. Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP? Explain.

Consider the following data on Canadian GDP:
$$\begin{array}{|c|c|c|}\hline \text { Year } & \begin{array}{c}\text { Nominal GDP } \\\text { (in billions) }\end{array} & \begin{array}{c}
\text { GDP Deflator } \\\text { (base year }2007)\end{array} \\\hline 2013 & \$ 1893 & 111 \\\hline 2014 & \$ 1975 & 113 \\\hline
\end{array}$$
a. What was the growth rate of nominal GDP between 2013 and $2014 ?$ (Note: The growth rate is the percentage change from one period to the next.)
b. What was the growth rate of the GDP deflator between 2013 and $2014 ?$
c. What was real GDP in 2013 measured in 2007 prices?
d. What was real GDP in 2014 measured in 2007 prices?
e. What was the growth rate of real GDP between 2013 and $2014 ?$
f. Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP? Explain.

Key Concepts

Relationship Among Nominal GDP, Real GDP, and Inflation

This concept highlights how nominal GDP, real GDP, and inflation interrelate. While nominal GDP may increase due to higher production or rising prices, the real GDP measurement adjusts for inflation using the GDP deflator, providing insight into the actual increase in economic output. Comparing the growth rates of nominal and real GDP can reveal the extent to which inflation has influenced economic measurements.

Growth Rate Calculation

The growth rate calculation involves determining the percentage change between two point values over time. It is typically computed by subtracting the earlier value from the later value, dividing the result by the earlier value, and then multiplying by 100. This method applies to nominal GDP, real GDP, and price indices like the GDP deflator.

GDP Deflator

The GDP deflator is a price index that reflects the level of prices of all new, domestically produced, final goods and services in an economy. It is used to convert nominal GDP into real GDP by accounting for inflation, enabling a clearer analysis of economic growth in real terms.

Real GDP

Real GDP adjusts the nominal GDP figure for changes in the price level, using constant prices from a designated base year. This adjustment allows for a more accurate comparison of economic output over time by isolating changes in production volume from changes in prices.

Nominal GDP

Nominal GDP represents the market value of all final goods and services produced in an economy during a given period, measured using current prices at the time of production. This measure does not adjust for inflation, meaning that increases in nominal GDP could arise from rising production levels, higher prices, or both.

Transcript

00:02 Once again, welcome to new problems.

00:05 This time we're dealing with economics.

00:08 And when you talk about economics, there's macroeconomics and then there's also microeconomics.

00:18 And in this sense, in macroeconomics, you're dealing with a whole economy.

00:25 And one of the things that you deal with is the gdp.

00:29 Gdp is the gross domestic.

00:33 Product, gdp is the gross domestic product and the components, if you want to call it that, the components of the gross domestic product are connected to all forms of production that are tied to an economy, a country's economy.

00:57 So when you explain gdp, gdp, gdp becomes the total production of goods and services, total production of goods and services in an economy.

01:21 So that's what you're looking at.

01:23 You're looking at the production of goods and services in an economy and then of course you're excluding excluding the excluding the exports you know because you're also looking at the exports and if you want to look at the contributors if you want to look at the contributors of gdp one of the things you're looking at is income obviously you're also looking at things like investments, you're looking at investments.

02:12 There are many other factors that you're looking at, but more so, you're looking at all the things that come together such that you're building an economy, you're building an actual economy.

02:29 That's what you're doing.

02:31 So there are obviously different types of gdp.

02:33 You're going to come across nominal gdp, real gdp.

02:38 And then also, in terms of understanding the impact of gdp on living standards, you have prizes and under prizes, you have cpi, which is the consumer prize index, and the cpi, if you want to define it, it's pretty much the value.

03:03 Or the prices of a basket of goods and services in a typical economy.

03:12 So you're looking at the prices of goods and services in a typical economy.

03:19 So we're saying that, oh, maybe you go in and you collect a bunch of products, a typical basket of products.

03:32 And you are in an urban environment for example so you're looking at the basket the basket of goods goods and services and within this basket you looking at the changes in prices over time changes in prices of a time and this is based on offer of many factors including inflation based on many factors including inflation.

04:08 So coming back to our problem, we do have a new problem here.

04:13 And in this particular problem, what we're saying is that we have a table.

04:21 And the table shows us two years, 2014 and 1994.

04:29 2014 and 1994 and 1994 and in 2014 and in 2014 we do have the nominal gdp we have the nominal gdp and this is in billions of dollars that's for the us gdp and then also we do have the gdp deflator and we're going to use a base year of 2000 so 2009, the year 2009 is going to be a benchmark.

05:08 And that's not a surprise because in 2009 we had a recession.

05:13 So obviously you can think about that as a base year, but that's not the only reason why you pick that one.

05:21 So this is 17 -419.

05:24 This is in billions of dollars.

05:25 And then we also have the gdp for all these values.

05:29 And you can see that compared to 2014, the gdp in 2014 was 8 points higher than in 2009 and almost 20 -something points or 27, 26 .4 points lower than it was in 1994 compared to 2009.

05:56 So in part a in this problem determine the growth rate of nominal nominal gdp between 1994 and 2014 so you want to get the growth weight of the nominal gdp between these two years so we're just going to jump right into it and see what happens with this if we're looking at the growth rate for gdp i will say the growth rate i'm gonna say the growth rate of nominal nominal gdp is the same as taking the we're using a specific formula 100 and then we multiplying that by the nominal nominal gdp in 2014 and then we're also doing the same thing, nominal gdp.

07:12 In 1994, we have an exponential factor, we subtract one, and then we complete the bracket.

07:23 And then the next step and the problem is to plug in the requisite numbers...

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