Consider the following table Change the base year to 2006 in

Consider the following table: Change the base year to 2006 in the above problem Recalculate the price index for years 2000, 2003 and 2006 Recalculate the real GDP for the years 2000, 2003, 2006

Solution

(a) Price index (base year 2006)

Price index = Nominal GDP / Real GDP

In 2006, Price index = 13,306.3 / 11,464 x 100 = 116.07. This is the base index, so, 116.07 is equivalent to 100.

2003: 10,971.2 / 10,320.6 = 1.0630.

Keeping 2006 as base, Price index = (106.3 / 116.07) = 0.9158

2000: 9817 / 9817 = 100.

Keeping 2006 as base, Price index = (100 / 116.07) = 0.8615

(b) Real GDP = Nominal GDP / Price Index

2000: 9810 / 0.8615 = 11,387.1

2003: 10,971.2 / 0.9158 = 11,979.9

2006: 13,306.3 / 1 = 13,306.3