Abstract
In this paper we will show how to calculate real and nominal GDP. Also we will show how to calculate the GDP deflator. Finally we will discuss trends in the GDP over the last few years and surmise what caused changes in the GDP over this time period.
Part 1
In this first part we will calculate real GDP. Real GDP is defined as GDP adjusted for price changes (O'Sullivan, Sheffrin, & Perez, 2008). For all of our calculations we will be using the following table.
CD’s Tennis Racquets CD’s Tennis Racquets
2005 90 180 $18 $100
2006 100 190 $20 $110
In this example we will be calculating real GDP using 2005 as a base year. Here is how the calculations break down.
Nominal GDP
2005 90 X $18 = $1,620 180 X $100 = 18,000, $1,620 + $18,000 = $19,620
2006 100 X $20 = $2,000 190 X $110 = $20,900, $2,000 +$20,900 = $22,900
2006 at 2005 prices real GDP
100 X $18 = $1,800 190 x $100 = $19,000, $1,800+$19,000 = $20,800
($20,800 -$19,620) /$19,620 = 0.06 X 100 =6.0 % Growth
Part 2
In this next part we will be calculating the GDP deflator. GDP deflator is defined as an index that measures how the prices of goods and services included in GDP change over time (O'Sullivan, Sheffrin, & Perez, 2008). We will use the above table and calculations to calculate GDP deflator.
Nominal GDP for 2005 = $19,620
Nominal GDP for 2006 = $22,900
$22,000 / $20,800 =1.05 X 100 = 105
(105 -100) /100 = 5/100 = 0.05 X 100 = 5% change
Part 3
In the third part of this paper we will be calculating real GDP for 2005 using 2006 prices.
100 x $18 = $1,800 190 X $100 = $19,000, $1,800 + $19,000 = $20,900
($22,900 - $20,900) / $22,900 = $2,000 / $22,900 = 0.087 X 100 = 8.7% Growth
Pa ...