CH3 Numerical problems

1- Gross Domestic Product (GDP):

Y = C + G + I + NX …………….. Or……………… GDP = C + G + I + NX

2- Nominal GDP (NGDP) :

NGDP = Q same year X P same Year

3- Real GDP( RGDP) :

RGDP = Q same year X P base Year

4-Deflator (DEF.):

DEF. = (NGDP / RGDP x 100) – 100 …………..Or…...............

DEF. = (NGDP / RGDP) – 1 x100
4- Inflation rate:

(DEF. Current year – DEF. past year / DEF. past year) x 100

5- Economic Growth:
A- Calculating the Final Value of output (Yt)

Yt = Y1 (1+ r)t
Where:-
- ( Y1) is the initial amount
- (r) is the growth rate
- (t) is the number of years of growth

B- Calculating the value of the growth (increase) of output

Yt – Y1

C- Calculating The cumulative (overall) growth rate

(Yt – Y1) /Y1 X 100

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CH3 Numerical problems

D- Calculating the rate of average annual growth (r)

r = (Yt/Y1) (1/t) – 1 X 100

E- Calculating the period ( t) needed to reach certain output level

t= log(Yt/Y1) / log(1+r)

6- GDP per capita

GDP / population
7- CPI ( consumer price index) two steps to calculate :-
a. Cost of CPI
P current year x Q base year
b. CPI
(Cost of CPI current year / Cost of CPI current year) x100

8- Gross National Product (GNP)

GNP = GDP + Net factor income from abroad
Where :
Net factor income from abroad is net income earned by domestic
residents from overseas investments minus net income earned by foreign
residents from domestic investments.
GNP per capita

GNP / population

Any growth rate for 9 GDP or GNP

New Value – Old Value / old value X 100

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CH3 Numerical problems

Examples
Example1) Use the following data to calculate Nominal GDP, Real GDP
and, GDP deflator:
Year quantity A Price A quantity B Price B
1 50 2 70 3
5 65 2.2 75 3.4

1- Calculating Nominal GDP

Solution:
Nominal GDP for Year 1= (50 X 2) + (70 X 3) =310
Nominal GDP for Year2= (65 X 2.2) + (75 X 3.4) =398
2- Calculating Real GDP
Solution:
The first step to calculate real GDP is choosing a base year. For our
example, to calculate the real GDP for year (5) using year (1) as the base
year, use the GDP equation with year 5 quantities and year 1 prices
Real GDP for year 5 = (65 X $ 2) + (75 X $ 3) = $ 355
3- Calculating GDP deflator
Solution:
GDP deflator = ( nominal GDP / real GDP ) -1
( $ 398 / $ 355 ) -1 = 0.121 X 100 = 12.1 %
This means that the price level increased by 12.1 % from year (1), the base
year, to year (5 ) , the comparison year or current year.

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 CH3 Numerical problems

Example2) Use the following data to calculate GDP, GNP & Annual
growth rate of GDP and GNP.

Year Value (million $) of food output Value (million $) of clothes output

produced by produced by

Nationals in Nationals Foreigners in Nationals in Nationals Foreigners in

the country outside the the country the country outside the the country
country country

1 1,330 55 87 1,155 35 140

2 1,280 60 93 1,330 38 135

From the previous table calculate the following

A- GDP for year 1 & 2.
B- GNP for 1 & 2.
C- Annual growth rate of GDP and GNP.
Solution:

• GDP for year 1 = (1,330 + 87) +(1,155 +140) =$2,712

• GDP for year 2 = (1,280 + 93)+(1,330 + 135) =$2,838

• GNP for year 1 = (1,330 + 55)+(1,155 + 35) = $2,575

• GNP for year 2 = (1,280 + 60)+(1,330 +38) =$2,708

• GDP growth rate = (2838-2712)/2712 X 100 = 4.6%

• GNP growth rate = (2,708-2,575)/2,575 X 100 = 5.1%

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 CH3 Numerical problems

Example3) Use the following data to calculate Per capita GDP, Per capita
GNP & Per capita GDP growth

Year Number of GDP GNP

population
($million) ($million)
($million)
1 35 80,000 60,000

2 37 90,000 70,000

Solution:
A- Per capita GDP for year 1 = $ 80,00 / 35 = $2,286
B- Per capita GDP for year 2 = $ 90,000 / 37 = $2,432
C- Per capita GNP for year 1 = $ 60,000 / 35 =$ 1,714
D- Per capita GNP for year 2 = $ 70,000 / 37=$ 1,892
E- Per capita GDP growth = ($ 2,432- $ 2,286) / $2,286 X 100 = 6.3 %
F- Per capita GNP growth = ($ 1,892 - $ 1,714) / 1,714) X 100= 10.3%

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CH3 Numerical problems

Example 4) the following table includes the price and number of units
purchased by a typical consumer during 4 years. Compute the CPI for
country X based on the following data:

Product A Product B
Year
quantity price Quantity price
1 50 2.1 70 3.2
2 50 2.5 70 3.5
3 50 3.1 70 4.1
4 50 3.6 70 4.8
Solution
Year Cost of Price Basket CPI

1 329 100 fixed

2 370 112
3 442 134
4 516 157
Cost of Price Basket =
(Quantity Product A X price Product A) + (Quantity Product B X price
Product B)
(50 X 2.1) + (70 X 3.2) = 329
(50 X 2.5) + (70 X 3.2) = 370
(50 X 3.1) + (70 X 4.1) = 442
(50 X 3.6) + (70 X 4.8) = 516
CPI = (compared year / base year)*100
A- CPI YEAR 1= (370/329) X 100 =112
B- CPI YEAR2 =(442/370) X 100=134
C- CPI YEAR 3= (516/442) X 100=157
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 CH3 Numerical problems

Example 5) the following table includes the price and number of

units purchased by a typical consumer during 4 years.
Year Product x Product y

Q P Q P
1 80 10.5 100 6.8
2 80 11.9 100 8.2
3 80 13.5 100 9.3
4 80 14 100 10.5
Compute the following
1- The cost of price basket from year 1 to 4
2- CPI for year 2 based on year 1’s prices.
3- CPI for year 3 based on year 2’s prices.
4- CPI for year 4 based on year 3’s prices.
5- CPI for year 4 based on year 1’s prices.
Solution
Year Cost of price basket CPI

1 1,520 100
2 1,772 116.5
3 2,010 113
4 2,170 108
4 2,170 143
The cost of price basket from year 1 to 4
(Quantity Product A X price Product A) + (Quantity Product B X price
Product A)
CPI = (compared year / base year)*100

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CH3 Numerical problems

Example 6 ) Calculating economic growth

A) Calculating the Final Value of output (Yt)
Suppose that the value of output in a certain year is $100,000 which is
growing at 6% annually. Calculate the gross value of output after 5 years.
Since Yt = Y1 (1+ r)t
then Y5 = $100,000 (1 + .06)5 = $133,822
B) Calculating the value of the growth of output
Using the above example, we can measure the total growth from a base
year (year 1) to a later year (year 5) as follows:
The value of output growth =
$133,822 - $100,000 = $33,822
C) Calculating the cumulative (overall) growth rate
Using the above example, we can measure the percentage of change in Y
from year (1) to year (5) as follows:
The cumulative growth rate =
($33,822 / $100,000)*100 = 33.82% = 34%
D) Calculating the rate of average annual growth (r)
If the value of output in year (1) equals $120,000, and equals $180,000
in year (5), then the rate of average annual growth can be calculated
using the following equation:
r = (Yt/Y1)(1/t) – 1
r = ($180,000 / $120,000)1/5 – 1 *100 =
r = 1.0844 – 1 = 0.0844 = 8.44%
E) Calculating the period ( t) needed to reach certain output level
Suppose that output level of year (1) is $100,000, and annual growth rate
is 7%, calculate how long it will take this output level to reach $210,000.
Calculating the number of years requires
= log(Yt/Y1) / log(1+r)

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CH3 Numerical problems

= log($210,000 / $100,000) / log(1 + 0.07)

= log (2.1) / log (1.07) = 0.322 / 0.029 = 11 year

Example 7 ) Calculating economic growth

Suppose that the output value for country x in 2012 is $150,000 million
, it grows at 6% annually . Calculate the following
1- The gross value of output in 2019.
2- The value of output growth in 2019.
Solution .
1- The gross value of output in 2019 (Yt) =
Y1 ( 1 + r )t = 150,000 (1+ 6%)7 = $ 225,545
2- The value of output growth
Yt -Y1 = 225,545 - 150,000 = $ 75,545

Example 8) Calculating economic growth

Suppose that the level of output is $150,000 million in (2012) and
reached $260,000 in (2019) ,calculate the rate of average annual growth
rate .
Solution
𝑦𝑡 = 260,000 , 𝑦𝑖 = 150,000 , t = 7 years
r = (Yt/Y1) (1/t) – 1 X 100
= (260,000/150,000)1/7 - 1 )*100% = 8%

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