In the year 2010, the economy produces 100 loaves of bread that sell for $2 each. In the year 2011, the economy produces 200 loaves of bread that sell for $3 each. By what percentage does nominal...
In the year 2010, the economy produces 100 loaves of bread that sell for $2 each. In the year 2011, the economy produces 200 loaves of bread that sell for $3 each. By what percentage does nominal GDP rise between 2010 and 2011?
In order to find the percent change in nominal GDP between these two years, we will first have to determine what the nominal GDP was for each year.
Nominal GDP is found by determining the market value of all final products that are produced within a given country in a given year. Basically, you determine GDP by multiplying the number of products made by their price. In a real economy, this is very complex. However, in the example given here, the economy only produces one product so the calculation is easy.
In 2010, the economy made 100 loaves of bread that sold for $2 each. This means that the nominal GDP for that year was $200 (2*100). In 2011, the economy made 200 loaves and the price rose to $3. Therefore, the nominal GDP was $600 (3*200).
What this tells us is that nominal GDP tripled between 2010 and 2011. Now let us find the percent change. The formula for percent change is (new value - old value)/old value. In this case, that would be (2011 GDP – 2010 GDP)/2010 GDP. Plugging the numbers in, that would be
(600 – 200)/200 = 400/200 = 2.
We convert that into a percentage by multiplying by 100.
This means that the change in nominal GDP from 2010 to 2011 was 200%.