The computation of the average annual growth rate of real GDP

A. is more complex when examining data for a long period of time than when examining data for only a few years.

B. is the same for shorter periods of time as for longer periods of time.

C. involves simply averaging the growth rate for each year, but only if data for many years are available.

D. involves computing the percentage change in real GDP between the first year and the last year for the period being examined.

Question

Catherine Logan

Business

14 January, 13:15

The computation of the average annual growth rate of real GDP

A. is more complex when examining data for a long period of time than when examining data for only a few years.

B. is the same for shorter periods of time as for longer periods of time.

C. involves simply averaging the growth rate for each year, but only if data for many years are available.

D. involves computing the percentage change in real GDP between the first year and the last year for the period being examined.

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Answers (1)

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Thaddeus Burnett · Answer 1

A) is more complex when examining data for a long period of time than when examining data for only a few years.

Explanation:

Real gross domestic product (GDP) is calculated dividing nominal GDP by the deflator (or the CPI which should be the same).

real GDP = nominal GDP / deflator

The problem is that when you are examining information from long periods of time, calculating the deflator or CPI index starts getting complicated and also losses relevance. That is why the base year for calculating real GDP is updated after some years. What good can we get from calculating real GDP is we used 1920 as the base year?