Question

Suppose that nominal GDP was $10000000.00 in 2005 in Fairfax County Virginia. In 2015, nominal GDP was $11500000.00 in Fairfax County Virginia. The price level rose 2.50% between 2005 and 2015, and population growth was 3.50%. Calculate the following figures for Fairfax County Virginia between 2005 and 2015. Give all answers to two decimals.

a. Nominal GDP growth was     %.

Part 2   (1 point)

b. Economic growth was    %.

Part 3   (1 point)

c. Inflation was    %.

Part 4   (1 point)

d. Real GDP growth was    %.

Part 5   (1 point)

e. Per capita GDP growth was    %.

Part 6   (1 point)

f. Real per capita GDP growth was    %.

Answer 1

Part 1

Nominal GDP growth is equivalent to %Δ nominal GDP. 

So nominal GDP growth is ($11500000.00 - $10000000.00) ÷ $10000000.00  = 0.15  = 15.00%. 
 

 

 

Part 2

Economic growth is determined by this formula:

economic growth ≈ %Δ nominal GDP - %Δ price level - %Δ population

economic growth ≈ 15.00%  - 2.50%  - 3.50% 

economic growth ≈ 9.00% 

Part 3

The %Δ price level is also known as inflation. So, in this case, inflation is 2.50%.

Part 4

Real GDP growth is equal to nominal GDP growth corrected for inflation.

In Fairfax County Virginia, real GDP growth = 15.00% - 2.50% = 12.50% between 2005 and 2015.

Part 5

Per capita GDP growth is equal to nominal GDP growth corrected for population growth.

So per capita GDP growth = 15.00% - 3.50% = 11.50% in Fairfax County Virginia, between 2005 and 2015.

Part 6

Economic growth, also known as real per capita GDP growth, corrects for both changes in the price level and population growth.

So economic growth = 15.00% - 2.50% - 3.50% = 9.00%.