Use the information in the table to calculate real GDP for 2012, assuming that the base year is 2005. (Assume that all the tomato is used in the production of tomato soup.)

Question

2005 2012 2013

Q P Q P Q P

Textbooks 100 45 100 60 100 65

Hamburgers 75 2 90 2 100 2.25

Tomato soup 60 10 65 10 75 10

Tomato 100 0.80 700 0.60 120 0.70

b- What is the growth rate of real GDP during 2013?

Answer 1

1. Real GDP is evaluated at the market prices of the base year, which is 2005 in this case.
2. Real GDP for 2012 is evaluated by multiplying each quantity in 2012 by its price in 2005, and then adding those together:

real GDP₂₀₁₂ = Q of textbooks in 2012 multiplied by price of textbooks in 2005 + Q of hamb in 2012 multiplied by price of hamb in 2005 etc etc= 100·45+90·2+65·10+700·0.80= 5890

b)

1. to evaluate growth rate of real GDP in 2013, first we need to evaluate real GDP in 2013, same way we did for 2012; using prices in 2005 as a base year.
2. then we move on to evaluate growth rate in 2013, in relation to year prior to 2013, which is 2012.

real GDP ₂₀₁₃ = Q of textbooks in 2013 multiplied by price of textbooks in 2005 + Q of hamb in 2013 multiplied by price of hamb in 2005 etc etc= 100·45+100·2+75·10+120·0.80= 5546

1. to evaluate any growth rate ever, use the formula: ((new value - old value)/ old value) ·100

growth rate g_r= ((r.GDP₂₀₁₃ - r.GDP₂₀₁₂)/r.GDP₂₀₁₂)· 100= ((5546-5890)/5890) = -5.84%