Total Posts:6|Showing Posts:1-6
Jump to topic:

Calculating Real GDP!!! Help Please.

Adilio
Posts: 1
Add as Friend
Challenge to a Debate
Send a Message
4/8/2016 12:31:24 PM
Posted: 7 months ago
In 2005 a country's nominal GDP was R500 Billion and in 2006 it was R600 Billion. If the inflation rate was 17% in 2006, what is the approximate value of the country's real GDP in 2006 ( measured in 2005 prices)?

1- R 513 billion
2 -R 498 billion
3 -R 587 billion
4 -R 600 billion
autocorrect
Posts: 432
Add as Friend
Challenge to a Debate
Send a Message
4/12/2016 10:05:11 PM
Posted: 7 months ago
I think it's 498 - because the whole of the 600bn earned in 2006 was at a +17% interest rate on 2005. So 600bn x 17% = 102bn.

I could be wrong.
WAM
Posts: 139
Add as Friend
Challenge to a Debate
Send a Message
4/13/2016 7:56:10 PM
Posted: 7 months ago
At 4/12/2016 10:05:11 PM, autocorrect wrote:
I think it's 498 - because the whole of the 600bn earned in 2006 was at a +17% interest rate on 2005. So 600bn x 17% = 102bn.

I could be wrong.

That would be the logical answer, however, it's wrong.

Because this is Economics, it has to be non logical. Which is why I despise economics.

So the correct answer is 513 (rounded).
The calculation is (Nominal GDP)/(inflation rate + 100 (as a percentage)

So 600/1.17 = 512.82 Rounded up to 513.

The reason why is because the inflation rate is 'added' to the already existing 100% from previous years, and as such makes 117% of a 'new' amount. The 'Fisher' equation which is used here is 1+Nominal = (1+Real) (1+inflation (as a percentage)

The test would be this = (1+513) (1+.17) = 601.38 -1 = 600.38 (the .38 is due to rounding. However, even if I use the 'correct' amount that my calculator gives me, I do not get an exact 600, as my calculator doesn't display enough decimal numbers.)

However, I somehow doubt that the OP will ever look at this page again. Good to see that people can make percentage calculations though..
autocorrect
Posts: 432
Add as Friend
Challenge to a Debate
Send a Message
4/13/2016 8:23:01 PM
Posted: 7 months ago
At 4/13/2016 7:56:10 PM, WAM wrote:
At 4/12/2016 10:05:11 PM, autocorrect wrote:
I think it's 498 - because the whole of the 600bn earned in 2006 was at a +17% interest rate on 2005. So 600bn x 17% = 102bn.

I could be wrong.

That would be the logical answer, however, it's wrong.

Because this is Economics, it has to be non logical. Which is why I despise economics.

So the correct answer is 513 (rounded).
The calculation is (Nominal GDP)/(inflation rate + 100 (as a percentage)

So 600/1.17 = 512.82 Rounded up to 513.

The reason why is because the inflation rate is 'added' to the already existing 100% from previous years, and as such makes 117% of a 'new' amount. The 'Fisher' equation which is used here is 1+Nominal = (1+Real) (1+inflation (as a percentage)

The test would be this = (1+513) (1+.17) = 601.38 -1 = 600.38 (the .38 is due to rounding. However, even if I use the 'correct' amount that my calculator gives me, I do not get an exact 600, as my calculator doesn't display enough decimal numbers.)

However, I somehow doubt that the OP will ever look at this page again. Good to see that people can make percentage calculations though..

I suspected there might be something I wasn't taking into account with regard to how the previous years earnings were factored in. I looked it up on wiki - but real and nominal interest rates...? I give in!