Question

Let’s look at GDP and foreign exchange in Iceland. We can extract the following data from the World Bank, which maintains a database of economic data for all countries:

Fill in the blanks in the table using the formulas from the assigned reading (a bit of algebra is required):

	2010	2011	2012	2013	2014	2015	2016
Nominal GDP ($ billions)	1627.11	1708.31	1787.68	1899.68	2020.55
GDP deflator	100.00	102.97	106.35			119.57	122.10
Real GDP ($ billions)				1753.35	1791.93	1869.19	2009.03
Population (total)	318041	319014	320716	323764	327386	330815	335439
Official exchange rate (Krona per US$)	122.24	115.95	125.08	122.18	116.77	131.92	120.81

Answer these questions:

What was real GDP per capita in 2015? ___________________.

What was real GDP per capita in 2016? ___________________.

Using your answers above, compute the real GDP per capita growth rate for 2016: ___________.

In 2012, your instructor went to Iceland for an academic conference. The Icelandic currency is called the Krona. While there, he spent:

62,540 krona on hotel

10,630 krona on food

15,635 krona on souvenirs

How much did he spend in US dollars? __________________.

Answer 1

(a)

Real GDP in 2015 = $1,869.19 billion

Population in 2015 = 330815

Calculate the real GDP per capita in 2015 -

Real GDP per capita in 2015 = Real GDP in 2015/Population in 2015

Real GDP per capita in 2015 = $1,869.19 billion/330815 = $5,650,257.69

The real GDP per capita in 2015 is $5,650,257.69

(b)

Real GDP in 2016 = $2,009.03 billion

Population in 2016 = 335439

Calculate the real GDP per capita in 2016 -

Real GDP per capita in 2016 = Real GDP in 2016/Population in 2016

Real GDP per capita in 2016 = $2,009.03 billion/335439 = $5,989,255.87

The real GDP per capita in 2016 is $5,989,255.87

(c)

Calculate the real GDP per capita growth rate for 2016 -

Growth rate = [(Real GDP per capita in 2016 - Real GDP per capita in 2015)/Real GDP per capita in 2015] * 100

Growth rate = [($5,989,255.87 - $5,650,257.69)/$5,650,257.69] * 100 = 5.99% or 6%

The real GDP per capita growth rate for 2016 is 5.99 or 6 percent.

(d)

Total spending (in krona) = 62,540 + 10,630 + 15,635 = 88,805 krona

In 2012,

Exchange rate = 125.08 krona per dollar

Total spending (in dollars) = 88,805/125.08 = $709.98

The amount spent in US dollars is $709.98.