Question

1. The following question deals with calculating GDP growth. The following table contains data on annual real GDP in 5 economies for 2007-2010. All data are from the World Bank website. Country/Year German Greece Ital Portugal United States 2007 3064.03 270.35 1918.57 205.36 13681.97 2008 3097.19 269.45 1898.43 205.77 13642.081 2009 257.86 199.64 2010 3042.43 243.73 1825.06 203.43 2923.17 1794.37 13263.4413599.26 a. For each country, calculate the annual growth rate of real GDP for the years 2008- b. Can you conclude that the world is integrated from the table you created? How?

Answer 1

Answer A.

For the countries given in the table, the data and % GDP growth on a year-on-year basis is calculated in the table below.

For any country, the GDP growth is calculated as follows -

% GDP Growth = [ ( Current Year GDP - Previous Year GDP) / Previous Year GDP ] * 100

Just as an example, Germany's GDP growth for 2008 is -

% GDP Growth in 2008 for Germany = [ ( 3097.19 - 3064.03 ) / 3064.03 ] * 100

% GDP Growth in 2008 for Germany = 1.08%

Similarly, growth is calculated for all years and for all countries.

Answer B.

From the above data, it is clear that the world is more integrated. To elaborate, 2008 was the year when the financial crisis in the United States emerged and all countries witnessed sluggish growth or marginally negative GDP growth. In 2009, the financial crisis was full blown and all countries went into deep recession.

While most countries recovered in 2010, Greece was an exception as the country faced a deeper crisis that took much longer to resolve. However, the period of recession was not just reflected for these countries, emerging markets were also impacted due to the financial crisis in the United States. This data makes it relatively clear that the world is more synchronized in terms of economic cycles of boom and bust.