Suppose only one Good 'X' is produced in the country. Output of Good X during year 2018 and 2019 were 100 units and 110 units respectively. The market price of the product during the two years was Rs. 50 and Rs. 55 per unit respectively. Calculate the percentage change in Real Gross Domestic Product (GDP) in year 2019 using 2018 as the base year.

Question

Accepted Answer

Given:
Year 2018: Output = 100 units, Price = Rs. 50/unit
Year 2019: Output = 110 units, Price = Rs. 60/unit

Nominal GDP 2018 = 100 x 50 = Rs. 5,000
Nominal GDP 2019 = 110 x 60 = Rs. 6,600

Real GDP 2019 (at 2018 prices) = 110 x 50 = Rs. 5,500

Nominal GDP growth = (6,600 - 5,000)/5,000 x 100 = 32%
Real GDP growth = (5,500 - 5,000)/5,000 x 100 = 10%

The 32% nominal growth includes both price increase and quantity increase. Real GDP growth of 10% reflects only the true increase in output.