Given the following information, convert the figure for nominal GDP (nGDP) in 2014 to its real GDP (rGDP) value in 2006 dollars.
GDP2014 = $1.4 trillion CPI2014 = 110
GDP2006 = $1.0 trillion CPI2006 = 100
1.3 trillion
To convert the figure for nominal GDP (nGDP) in 2014 to its real GDP (rGDP) value in 2006 dollars, we need to adjust for changes in the price level by using the Consumer Price Index (CPI). Here are the steps to calculate the real GDP:
Step 1: Find the GDP deflator for both years.
- GDP deflator = (Nominal GDP / Real GDP) * 100
GDP deflator in 2014:
GDP2014 = $1.4 trillion
Real GDP in 2014 = ?
CPI2014 = 110
Using the formula:
GDP deflator in 2014 = (Nominal GDP / Real GDP in 2014) * 100
Rearranging the formula, we can solve for Real GDP in 2014:
Real GDP in 2014 = Nominal GDP / (GDP deflator in 2014 / 100)
Real GDP in 2014 = $1.4 trillion / (110 / 100)
Real GDP in 2014 = $1.4 trillion / 1.1
Real GDP in 2014 = $1.27 trillion
Step 2: Calculate the GDP deflator for 2006.
GDP deflator in 2006:
GDP2006 = $1.0 trillion
Real GDP in 2006 = ?
CPI2006 = 100
Using the formula for GDP deflator:
GDP deflator in 2006 = (Nominal GDP / Real GDP in 2006) * 100
Rearranging the formula, we can solve for Real GDP in 2006:
Real GDP in 2006 = Nominal GDP / (GDP deflator in 2006 / 100)
Real GDP in 2006 = $1.0 trillion / (100 / 100)
Real GDP in 2006 = $1.0 trillion / 1
Real GDP in 2006 = $1.0 trillion
Step 3: Convert the real GDP in 2014 to 2006 dollars.
To adjust the real GDP in 2014 to 2006 dollars, we divide by the ratio of the GDP deflator for 2006 to the GDP deflator for 2014.
Conversion factor = (GDP deflator in 2006 / GDP deflator in 2014)
Conversion factor = (100 / 110)
Conversion factor = 0.909
Real GDP in 2006 dollars = Real GDP in 2014 / Conversion factor
Real GDP in 2006 dollars = $1.27 trillion / 0.909
Real GDP in 2006 dollars ≈ $1.4 trillion
Therefore, the real GDP value in 2006 dollars for the nominal GDP in 2014 is approximately $1.4 trillion.
To convert nominal GDP (nGDP) in 2014 to its real GDP (rGDP) value in 2006 dollars, we need to adjust for inflation using the Consumer Price Index (CPI).
The formula to calculate real GDP is:
rGDP = nGDP * (CPIbase / CPIcurrent)
Where:
- rGDP: Real GDP in base year dollars
- nGDP: Nominal GDP in current year dollars
- CPIbase: CPI in the base year
- CPIcurrent: CPI in the current year
Given information:
GDP2014 = $1.4 trillion
CPI2014 = 110
GDP2006 = $1.0 trillion
CPI2006 = 100
Substituting the values into the formula, we have:
rGDP = $1.4 trillion * (100 / 110)
Simplifying the calculation:
rGDP = $1.4 trillion * 0.909
Calculating the real GDP value:
rGDP = $1.2736 trillion
Therefore, the real GDP value in 2006 dollars is approximately $1.2736 trillion.