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    Calculate real GDP

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    Use the following data to answer questions 1-3 (be sure to provide all calculations).

    Quantities Produced Prices
    CDs Tennis Racquets CDs Tennis Racquets
    Year 2004 100 200 20 110
    Year 2005 120 210 22 120

    1. Calculate real GDP for 2004 and 2005 using 2004 prices. By what percent did real GDP grow?

    2. Calculate the value of the price index for GDP for 2005 using 2004 as the base year. By what percent did prices increase?

    3. Now calculate real GDP for 2004 and 2005 using 2005 prices. By what percent did real GDP grow?

    4. Review the GDP information for the past few years from the Bureau of Economic Analysis's Website. Provide a brief summary of the GDP trends over that timeframe and discuss two or three events which may have caused these trends

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    Solution Preview

    1. Calculate the real GDP for year 2004 and 2005 using 2004 prices. By what percent did real GDP grow?

    (Please refer to EXCEL for calculation.)
    2004 real GDP = SUM(Price * Quantity) = 24000

    In calculating 2005 Real GDP, we use 2004 price and 2005 quantity.

    Then 2005 real GDP = 25500

    Then growth rate = GDP2005 / GDP2004 - 1 = 25500/24000 -1 = 6.3%

    2. Calculate the value of the price index for ...

    Solution Summary

    This posting assists with how to calculate real GDP using step by step calculations and explanation.

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