The task of my assignment was to calculate the Nominal GDP, given the GDP deflator and the Real GDP. This is what I got.
GDP Deflator Real GDP Nominal GDP
0.9 600 540
1.0 600 600
1.1 600 660
The second part of the question asks what is happening in terms of real growth in the economy? I am not sure what this mean, I only understood how to calculate. Can someone please help me with the second part of the question.
Real growth in the economy is measured by the change in real GDP, which in your example is zero.
To understand what is happening in terms of real growth in the economy, you need to analyze the changes in the Real GDP over the given values. Real GDP represents the economic output adjusted for inflation, while Nominal GDP is the GDP in current prices.
In your example, the Real GDP remains constant at 600 across all three scenarios, while the GDP Deflator and Nominal GDP change. This implies that there is no real growth in the economy. Real growth occurs when the Real GDP increases over time, indicating an expansion in the economy's productive capacity.
In your case, since the Real GDP stays the same at 600, it means that the economy is not experiencing any growth in terms of its actual output, adjusted for inflation. This could be interpreted as a stagnant or stable economy. It's worth noting that the GDP Deflator represents the average price level in the economy, so when it changes, it indicates the inflation or deflationary pressure.
To summarize, in terms of real growth, the lack of change in the Real GDP suggests that the economy is not expanding or contracting, and there is no change in its productive capacity.