The table gives data on the production and prices in a small economy. Use 2012 as the base period. Using the chained-price method, what is the growth rate of real GDP from 2012 to 2013?
What will be an ideal response?
To calculate the growth rate, it is necessary to calculate the growth rates using first 2012 and then 2013 prices and then take the average of the two rates. This procedure gives:
Real GDP in 2012 using 2012 prices = 150
Real GDP 2013 using 2012 prices = 350
Real GDP 2012 using 2013 prices = 250
Real GDP 2013 using 2013 prices = 600
Growth rate using 2012 prices = 133.3 percent
Growth rate using 2013 prices = 140.0 percent
Hence the growth rate equals 136.7 percent, the average of 133.3 percent and 140.0 percent.
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