Exploring GDP

8. The following table shows current-dollar GNP, a price index, and real GNP for three years. Fill in the blanks.

YEAR
GNP
(in billions)
PRICE INDEX
(1958=100)
REAL GNP

1943
$191.6
56.8
$

1956
419.2
446.1

1965
$
110.9
617.8


9. Below are complete output and price statistics for the island economy of San Prospero:
1987
1988
Output
Price
Output
Price

Grapefruit
1000
$.40
1200
$.30

Dates
400
$1.00
500
$1.10

Pears
400
$.50
300
$.80

a) What is current-dollar GDP for 1987? (This will be P87Q87) $

b) What is current-dollar GDP for 1988? (This will be P88Q88) $

c) By what percentage does GDP increase from 1987 to 1988? %

d) What is GDP in 1988 measured in 1987 prices? (This will be P87Q88) $

e) By what percentage has real GDP increased? (Compute (P87Q88) divided by (P87Q87).) %


f) There is another way to compute real GDP. Let us compute GDP in 1987 in 1988 prices. (This will be P88Q87) $

g) By what percentage has real GDP increased in this second way? (Compute (P88Q88) divided by (P88Q87).) %

h) The U.S. Commerce Department finds percentage increase in real GDP by taking the geometric mean of your answers in part e and g. (Your answers should be in the form 1.xx.) Multiply e and g together and find the square root. %

i. We are not done yet. We need to compute the price index. There are two ways to do this. First, we can keep the quantities constant at 1987 levels and compute (P88Q87) divided by (P87Q87). What do you get?

j. The other way is to keep the quantities constant at 1988 levels and compute (P88Q88) divided by (P87Q88). What do you get?

k. To find the GDP deflator, find the geometric mean of your answers in i and j. (Multiply them together and find the square root.)

l) As a check, if we multiply the answer in h with the answer in k, we should get very close to the answer in c. (This is how the Commerce Department constructs chain-type price and quantity indexes that you will meet in question 8 if you search around a bit.)

10. The reading explained what GDP tries to measure, but it did not tell us what the recent numbers are. You can find these numbers in several places on the web, such as at the Federal Reserve Bank of St Louis, which keeps lots of data at <http://www.stls.frb.org/fred/index.html>, or at the Bureau of Economic Analysis in the Commerce Department, <http://www.bea.gov/> or <http://www.bea.gov/bea/glance.htm>

What are the most recent data for nominal and real GDP?
What does the GDP deflator say is happening to the rate of inflation?
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