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# Calculations of real GDP for 2004 and 2005

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

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?

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.

##### Solution Summary

The solution calculates real GDP for 2004 and 2005 for a company.

##### Solution Preview

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?
In 2004, there were 100 CD's produced and each CD costs \$20; and 200 tennis racquets were produced and each racquet costs \$110.
2004 Nominal GDP = 100*20 + 200*110 = 2000 + 22,000 = \$24,000
In 2005, there were 120 CD's produced and each CD costs \$22; ...

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