Question

Using data from Table 6.5 how much of the nominal GDP growth from 1980 to 1990 was real GDP and how much was inflation?

Short answer

57% of the growth is inflation and 43% is real GDP growth.

Step-by-step solution

Step 1. Given Information

Table

Step 2. Description

From $1980to1990$, real GDP grew by

role="math" localid="1646300049192" $\begin{array}{rcl}& =& \frac{(8,225.0-5,926.5)}{(5,926.5)}\\ & =& 39\%\end{array}$

Over the same period, prices increased by

$\begin{array}{rcl}& =& (72.7-48.3)/(48.3/100)\\ & =& 51\%\end{array}$

So about $57\%$ of the growth was inflation

$=51/(51+39)$

The remainder was growth in real GDP, i.e.,

$$\begin{gathered} =39/(51+39) \\ =43\% \end{gathered}$$