Essay: The Calculation of Real GDP

Sample Essay

A2)      Real GDP = $ 30,000 in Year 1 and Real GDP = $ 31,200 in Year 2. To calculate the growth rate, the following formula is used:

Growth = [GDP (Year 2) – GDP (Year 1)] / GDP (Year 1) * 100

Therefore, Growth in Real GDP = [31,200 – 30,000] / 30,000 * 100 = 4 %

Same formula is applied for growth rate per capita.

Growth rate per capita = [102 – 100] / 100 * 100 = 2 %

A3)      Inflation = (121 – 110) / 110 * 100 = 10%. So inflation for this year is 10%.

The rule of 70 calculates the number of years required for the value of a variable to double, and the variable is a percentage. That percentage is the denominator and 70 is the numerator and the answer is the number of years in which that percentage will double. At 2% per year, Inflation will double in 70 / 2 = 35 years, and similarly, 14 years for 5% and 7% for 10 years. (McConnell & Brue, 2005).

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