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real GDP problem given nominal gdp and deflator?
okay, so i have to find the real GDP, but i dont know how to interpret the data.
i'm given 4 years: 2000, 2005, 2006, 2007
2000
nominal GDP (in billions of $) - 75.91
Inflation, GDP deflator (annual %) - 6.3
2005
nominal GDP (in billions of $) - 98.71
Inflation, GDP deflator (annual %) - 6.4
2006
nominal GDP (in billions of $) - 117.56
Inflation, GDP deflator (annual %) - 5.2
2007
nominal GDP (in billions of $) - 144.13
Inflation, GDP deflator (annual %) - 2.7
these are data from world bank website. i know that real gdp = nom gdp/gdp deflator x 100 but it doesnt make any sense since the result would be like a 4-digit number (like $5,000 billion). can someone enlighten me here???
2 Answers
- Anonymous1 decade agoFavorite Answer
You don't need to multiply by 100 if you are already using a number in % form. Just divide the nominal gdp by 2.7, or 5.2, or whatever the deflator is, and don't hit the % key after. For example, 144.13/2.7 = 53.39, but 144.13/2.7% = 4,227.03.
- Anonymous5 years ago
Measurement in national accounts In most systems of national accounts the GDP deflator measures the difference between the real (or chain volume measure) GDP and the nominal (or current price) GDP. The formula used to calculate the deflator is: \operatorname{GDP\ deflator} = \frac{\operatorname{Nominal\ GDP}}{\operatorname{Real\ GDP}}\times 100 Dividing the nominal GDP by the GDP deflator and multiplying it by 100 would then give the figure for real GDP, hence deflating the nominal GDP into a real measure. It is often useful to consider implicit price deflators for certain subcategories of GDP, such as computer hardware. In this case, it is useful to think of the price deflator as the ratio of the current-year price of a good to its price in some base year. The price in the base year is normalized to 100. For example, for computer hardware, we could define a "unit" to be a computer with a specific level of processing power, memory, hard drive space and so on. A price deflator of 200 means that the current-year price of this computing power is twice its base-year price - price inflation. A price deflator of 50 means that the current-year price is half the base year price - price deflation. Unlike some price indexes, the GDP deflator is not based on a fixed basket of goods and services. The basket is allowed to change with people's consumption and investment patterns. (Specifically, for GDP, the "basket" in each year is the set of all goods that were produced domestically, weighted by the market value of the total consumption of each good.) Therefore, new expenditure patterns are allowed to show up in the deflator as people respond to changing prices. The advantage of this approach is that the GDP deflator reflects up to date expenditure patterns. For instance, if the price of chicken increases relative to the price of beef, people would likely spend more money on beef as a substitute for chicken. A fixed market basket measurement would miss this change. In practice, the difference between the deflator and a price index like the CPI is often relatively small. On the other hand, with governments in developed countries increasingly utilizing price indexes for everything from fiscal and monetary planning to payments to social program recipients, the even small differences between inflation measures can shift budget revenues and expenses by millions or billions of dollars.