Homework 19.2 Adjusting Nominal Values to Real Values and Tracking Real GDP Over Time

Using the table below, calculate real GDP (in billions of dollars) in 2005. Round your answer to the nearest tenth. Year Nominal GDP(in billions of dollars) GDP Deflator(2005=100) 2002 8,309.8 83.3 2003 9,890.9 87.6 2004 10,302.9 94.5 2005 10,856.8 100 2006 11,200.8 106

To calculate real GDP, use the formula:Real GDP =Nominal GDP/(Price Index/100) The GDP Deflator is also known as the price level, so Real GDP in 2005 =$10,856.8/(100/100) ​​​​​​Real GDP in 2005 =$10,856.81=$10,856.8

An increase in population has increased aggregate demand within an economy, causing both output and prices to increase. Economists have estimated that this change has increased nominal GDP by 14% and the price level by 7%. What is the real GDP growth rate for this period?

% change in Quantity =% change in Nominal −% change in Price Therefore, real GDP growth rate (% change in quantity) equals the growth rate in nominal GDP (% change in value) minus the inflation rate (% change in price). % change in Quantity =14%−7%=7%

Suppose that an economy experienced a natural disaster that declined its nominal GDP by 5%. Meanwhile, inflation was 5%. What is the real GDP growth rate for this period?

% change in Quantity =% change in Nominal −% change in Price Therefore, real GDP growth rate (% change in quantity) equals the growth rate in nominal GDP (% change in value) minus the inflation rate (% change in price). % change in Quantity =−5%−5%=−10%

True or false?Depression and recession can be used interchangeably.

False Depression and recession cannot be used interchangeably because they refer to different economic situations. We call a decline in real GDP that typically lasts at least two consecutive quarters a recession. We call an especially lengthy and deep recession a depression. The severe drop in GDP that occurred during the 1930s Great Depression is clearly visible in the figure, as is the 2008-2009 Great Recession.

Using the table below, calculate real GDP (in billions of dollars) in 2016. Round your answer to the nearest tenth. Year Nominal GDP(in billions of dollars) GDP Deflator(2005=100) 2014 17,522 109.34 2015 18,219 110.51 2016 18,707 112.19 2017 19,485 114.27 2018 19,960 114.90

To calculate real GDP, use the formula:Real GDP =Nominal GDP/(Price Index/100) The GDP Deflator is also known as the price level, so Real GDP in 2016 =$18,707/(112.19/100) ​​​​​​Real GDP in 2016 =$18,707/1.1219=$16,674.4

A peak _______. Select the correct answer below: occurs where real GDP stops falling and begins rising is calculated as exports minus imports is calculated as imports minus exports is the highest point in an economy that comes just before real GDP begins falling and recession begins

is the highest point in an economy that comes just before real GDP begins falling and recession begins A peak is the highest point in an economy that comes just before real GDP begins to fall and recession begins.

The national savings rate decreases causing aggregate demand to increase and pushing real GDP from $55,000 to $70,000. What is the percent change in real GDP? Round your answer to the nearest hundredth.

real GDP increased, so the percent change is positive, 70,000-55,000/(55,000×100)=27.27%

Which of the following is the correct definition of real value? Select the correct answer below: the amount of all income earned in a nation the difference between a country's exports and imports the total value of all final goods and services produced in a country during a year the value of a good or service after adjusting for changes in inflation

the value of a good or service after adjusting for changes in inflation The definition of real value is the value of a good or service after adjusting for changes in inflation. Generally, the real value is a more important statistic than the nominal value since it tells us more about how to interpret the amount.

A rise in oil prices has caused input prices to increase throughout the economy, causing nominal GDP to increase by 13%. Meanwhile, the price level decreases by 2%. What is the real GDP growth rate during this period?

We know that,% change in Quantity =% change in Nominal −% change in Price Therefore, real GDP growth rate (% change in quantity) equals the growth rate in nominal GDP (% change in value) minus the inflation rate (% change in price). % change in Quantity =13%−(−2%)=15%

Following an increase in expansionary monetary policy, nominal GDP increased by 16% and inflation is 17%. What is the real GDP growth rate?

% change in Quantity =% change in Nominal −% change in Price Therefore, real GDP growth rate (% change in quantity) equals the growth rate in nominal GDP (% change in value) minus the inflation rate (% change in price). % change in Quantity =16%−17%=−1%

Which of the following tracks the pattern of recessions and expansions over time? growth trend the business cycle peak/trough cycle economic growth

the business cycle The term business cycle refers to the recurrent ups and downs in real GDP over several years. We call the highest point of the economy, before the recession begins, the peak. Conversely, the lowest point of a recession, before a recovery begins, is the trough. Thus, a recession lasts from peak to trough, and an economic upswing runs from trough to peak. We call the economy's movement from peak to trough and trough to peak the business cycle.

The GDP deflator is ______________. Select the correct answer below: the total price of all goods and services in the economy a price index measuring the average prices of all goods and services real GDP divided by PPI another word for the consumer price index (CPI)

a price index measuring the average prices of all goods and services The GDP deflator is a price index measuring the average prices of all goods and services included in the economy.

A(n) ______ is an especially lengthy period, where real GDP experiences a severe drop. Select the correct answer below: recession economic boom stagnation depression

depression We call a decline in real GDP that typically lasts at least two consecutive quarters a recession. We call an especially lengthy and deep recession a depression. The severe drop in GDP that occurred during the 1930s Great Depression is clearly visible in the figure, as is the 2008-2009 Great Recession.

What is the term for the point in the business cycle where real GDP reaches its lowest point and begins rising? Select the correct answer below: trade deficit peak trough trade surplus

trough A trough is the lowest point of a recession, where real GDP stops falling and begins rising.

Political instability within a country causes foreign direct investment to decrease dramatically, causing the economy to enter a recession, and decreasing real GDP from $80,000 to $50,000. What is the percent change in real GDP? Round your answer to the nearest tenth.

New GDP - Old GDP/(Old GDP×100)=% change In this case, real GDP decreased, so the percent change is negative, 50,000-80,000/(80,000×100)=−37.5%

Using the table below, calculate real GDP (in billions of dollars) in 2017. Round your answer to the nearest tenth. Year Nominal GDP(in billions of dollars) GDP Deflator (2005=100) 2014 17,522 109.34 2015 18,219 110.51 2016 18,707 112.19 2017 19,485 114.27 2018 19,960 114.90

To calculate real GDP, use the formula:Real GDP =Nominal GDP/(Price Index/100) The GDP Deflator is also known as the price level, so Real GDP in 2017 =$19,485114.27/100 ​​​​​​

Businesses become more optimistic and increase business expenditures on investment, causing real GDP to increase from $17,500 to $20,000. What is the percent change in real GDP? Round your answer to the nearest tenth.

To find the real growth rate, we apply the formula for percentage change: New GDP - Old GDPOld GDP×100=% change In this case, real GDP increased, so 20,000-17,50017,500×100=14.3%

An oil embargo has raised the price of fossil fuels, decreasing aggregate supply and causing real GDP to decrease from $10,000 to $9,000. What is the percent change in real GDP? If the change is a decrease in GDP, make sure to express your answer as a negative number. If necessary, round your answer to the nearest tenth.

To find the real growth rate, we apply the formula for percentage change: New GDP-Old GDP/(Old GDP×100)=% change In this case, real GDP decreased by 10% or the change in GDP is: 9,000-10,000/(10,000×100)=−10%

A change in relative prices between two counties has caused net exports to increase, resulting in real GDP increasing from $12,000 to $15,000. What is the percent change in real GDP? If necessary, round your answer to the nearest tenth.

To find the real growth rate, we apply the formula for percentage change: New GDP-Old GDPOld GDP×100=% change In this case, real GDP increased, so 15,000-12,00012,000×100=25%