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CH3 Numerical Problems

The document provides examples for calculating key economic indicators such as: 1. Nominal GDP, Real GDP, and GDP deflator using quantity and price data. 2. GDP, GNP, and their annual growth rates using output values by sector and nationality. 3. Per capita GDP, GNP, and their growth rates using population and aggregate GDP/GNP. 4. Consumer price index (CPI) using price baskets and inflation rates over multiple years. 5. Economic growth rates including calculating final output values, growth amounts, cumulative growth rates, average annual growth rates, and time periods for output to reach a given level.

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Mahmoud Hassaan
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0% found this document useful (0 votes)
54 views

CH3 Numerical Problems

The document provides examples for calculating key economic indicators such as: 1. Nominal GDP, Real GDP, and GDP deflator using quantity and price data. 2. GDP, GNP, and their annual growth rates using output values by sector and nationality. 3. Per capita GDP, GNP, and their growth rates using population and aggregate GDP/GNP. 4. Consumer price index (CPI) using price baskets and inflation rates over multiple years. 5. Economic growth rates including calculating final output values, growth amounts, cumulative growth rates, average annual growth rates, and time periods for output to reach a given level.

Uploaded by

Mahmoud Hassaan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CH3 Numerical problems

1- Gross Domestic Product (GDP):

Y = C + G + I + NX …………….. Or……………… GDP = C + G + I + NX


2- Nominal GDP (NGDP) :

NGDP = Q same year X P same Year


3- Real GDP( RGDP) :

RGDP = Q same year X P base Year


4-Deflator (DEF.):

DEF. = (NGDP / RGDP x 100) – 100 …………..Or…...............


DEF. = (NGDP / RGDP) – 1 x100
4- Inflation rate:

(DEF. Current year – DEF. past year / DEF. past year) x 100

5- Economic Growth:
A- Calculating the Final Value of output (Yt)

Yt = Y1 (1+ r)t
Where:-
- ( Y1) is the initial amount
- (r) is the growth rate
- (t) is the number of years of growth

B- Calculating the value of the growth (increase) of output

Yt – Y1

C- Calculating The cumulative (overall) growth rate

(Yt – Y1) /Y1 X 100

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CH3 Numerical problems

D- Calculating the rate of average annual growth (r)


r = (Yt/Y1) (1/t) – 1 X 100

E- Calculating the period ( t) needed to reach certain output level


t= log(Yt/Y1) / log(1+r)

6- GDP per capita

GDP / population
7- CPI ( consumer price index) two steps to calculate :-
a. Cost of CPI
P current year x Q base year
b. CPI
(Cost of CPI current year / Cost of CPI current year) x100

8- Gross National Product (GNP)


GNP = GDP + Net factor income from abroad
Where :
Net factor income from abroad is net income earned by domestic
residents from overseas investments minus net income earned by foreign
residents from domestic investments.
GNP per capita

GNP / population

Any growth rate for 9 GDP or GNP


New Value – Old Value / old value X 100

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CH3 Numerical problems

Examples
Example1) Use the following data to calculate Nominal GDP, Real GDP
and, GDP deflator:
Year quantity A Price A quantity B Price B
1 50 2 70 3
5 65 2.2 75 3.4

1- Calculating Nominal GDP


Solution:
Nominal GDP for Year 1= (50 X 2) + (70 X 3) =310
Nominal GDP for Year2= (65 X 2.2) + (75 X 3.4) =398
2- Calculating Real GDP
Solution:
The first step to calculate real GDP is choosing a base year. For our
example, to calculate the real GDP for year (5) using year (1) as the base
year, use the GDP equation with year 5 quantities and year 1 prices
Real GDP for year 5 = (65 X $ 2) + (75 X $ 3) = $ 355
3- Calculating GDP deflator
Solution:
GDP deflator = ( nominal GDP / real GDP ) -1
( $ 398 / $ 355 ) -1 = 0.121 X 100 = 12.1 %
This means that the price level increased by 12.1 % from year (1), the base
year, to year (5 ) , the comparison year or current year.

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CH3 Numerical problems

Example2) Use the following data to calculate GDP, GNP & Annual
growth rate of GDP and GNP.

Year Value (million $) of food output Value (million $) of clothes output


produced by produced by

Nationals in Nationals Foreigners in Nationals in Nationals Foreigners in


the country outside the the country the country outside the the country
country country

1 1,330 55 87 1,155 35 140

2 1,280 60 93 1,330 38 135

From the previous table calculate the following


A- GDP for year 1 & 2.
B- GNP for 1 & 2.
C- Annual growth rate of GDP and GNP.
Solution:

• GDP for year 1 = (1,330 + 87) +(1,155 +140) =$2,712

• GDP for year 2 = (1,280 + 93)+(1,330 + 135) =$2,838

• GNP for year 1 = (1,330 + 55)+(1,155 + 35) = $2,575

• GNP for year 2 = (1,280 + 60)+(1,330 +38) =$2,708

• GDP growth rate = (2838-2712)/2712 X 100 = 4.6%

• GNP growth rate = (2,708-2,575)/2,575 X 100 = 5.1%

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CH3 Numerical problems

Example3) Use the following data to calculate Per capita GDP, Per capita
GNP & Per capita GDP growth

Year Number of GDP GNP


population
($million) ($million)
($million)
1 35 80,000 60,000

2 37 90,000 70,000

Solution:
A- Per capita GDP for year 1 = $ 80,00 / 35 = $2,286
B- Per capita GDP for year 2 = $ 90,000 / 37 = $2,432
C- Per capita GNP for year 1 = $ 60,000 / 35 =$ 1,714
D- Per capita GNP for year 2 = $ 70,000 / 37=$ 1,892
E- Per capita GDP growth = ($ 2,432- $ 2,286) / $2,286 X 100 = 6.3 %
F- Per capita GNP growth = ($ 1,892 - $ 1,714) / 1,714) X 100= 10.3%

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CH3 Numerical problems

Example 4) the following table includes the price and number of units
purchased by a typical consumer during 4 years. Compute the CPI for
country X based on the following data:

Product A Product B
Year
quantity price Quantity price
1 50 2.1 70 3.2
2 50 2.5 70 3.5
3 50 3.1 70 4.1
4 50 3.6 70 4.8
Solution
Year Cost of Price Basket CPI

1 329 100 fixed


2 370 112
3 442 134
4 516 157
Cost of Price Basket =
(Quantity Product A X price Product A) + (Quantity Product B X price
Product B)
(50 X 2.1) + (70 X 3.2) = 329
(50 X 2.5) + (70 X 3.2) = 370
(50 X 3.1) + (70 X 4.1) = 442
(50 X 3.6) + (70 X 4.8) = 516
CPI = (compared year / base year)*100
A- CPI YEAR 1= (370/329) X 100 =112
B- CPI YEAR2 =(442/370) X 100=134
C- CPI YEAR 3= (516/442) X 100=157
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CH3 Numerical problems

Example 5) the following table includes the price and number of


units purchased by a typical consumer during 4 years.
Year Product x Product y

Q P Q P
1 80 10.5 100 6.8
2 80 11.9 100 8.2
3 80 13.5 100 9.3
4 80 14 100 10.5
Compute the following
1- The cost of price basket from year 1 to 4
2- CPI for year 2 based on year 1’s prices.
3- CPI for year 3 based on year 2’s prices.
4- CPI for year 4 based on year 3’s prices.
5- CPI for year 4 based on year 1’s prices.
Solution
Year Cost of price basket CPI

1 1,520 100
2 1,772 116.5
3 2,010 113
4 2,170 108
4 2,170 143
The cost of price basket from year 1 to 4
(Quantity Product A X price Product A) + (Quantity Product B X price
Product A)
CPI = (compared year / base year)*100

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CH3 Numerical problems

Example 6 ) Calculating economic growth


A) Calculating the Final Value of output (Yt)
Suppose that the value of output in a certain year is $100,000 which is
growing at 6% annually. Calculate the gross value of output after 5 years.
Since Yt = Y1 (1+ r)t
then Y5 = $100,000 (1 + .06)5 = $133,822
B) Calculating the value of the growth of output
Using the above example, we can measure the total growth from a base
year (year 1) to a later year (year 5) as follows:
The value of output growth =
$133,822 - $100,000 = $33,822
C) Calculating the cumulative (overall) growth rate
Using the above example, we can measure the percentage of change in Y
from year (1) to year (5) as follows:
The cumulative growth rate =
($33,822 / $100,000)*100 = 33.82% = 34%
D) Calculating the rate of average annual growth (r)
If the value of output in year (1) equals $120,000, and equals $180,000
in year (5), then the rate of average annual growth can be calculated
using the following equation:
r = (Yt/Y1)(1/t) – 1
r = ($180,000 / $120,000)1/5 – 1 *100 =
r = 1.0844 – 1 = 0.0844 = 8.44%
E) Calculating the period ( t) needed to reach certain output level
Suppose that output level of year (1) is $100,000, and annual growth rate
is 7%, calculate how long it will take this output level to reach $210,000.
Calculating the number of years requires
= log(Yt/Y1) / log(1+r)

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CH3 Numerical problems

= log($210,000 / $100,000) / log(1 + 0.07)


= log (2.1) / log (1.07) = 0.322 / 0.029 = 11 year

Example 7 ) Calculating economic growth


Suppose that the output value for country x in 2012 is $150,000 million
, it grows at 6% annually . Calculate the following
1- The gross value of output in 2019.
2- The value of output growth in 2019.
Solution .
1- The gross value of output in 2019 (Yt) =
Y1 ( 1 + r )t = 150,000 (1+ 6%)7 = $ 225,545
2- The value of output growth
Yt -Y1 = 225,545 - 150,000 = $ 75,545

Example 8) Calculating economic growth


Suppose that the level of output is $150,000 million in (2012) and
reached $260,000 in (2019) ,calculate the rate of average annual growth
rate .
Solution
𝑦𝑡 = 260,000 , 𝑦𝑖 = 150,000 , t = 7 years
r = (Yt/Y1) (1/t) – 1 X 100
= (260,000/150,000)1/7 - 1 )*100% = 8%

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