Introduction

Nominal and real gross domestic product (GDP): Activities

The following data gives the real and nominal GDP for South Africa for 2009 to 2011:

Year Nominal GDP

R million

 Real GDP

R million
2009 2 507 677 2 666 939
2010 2 748 008 2 748 008
2011 3 023 659 2 838 258

1 Which is the base year for the dataset?

Incorrect.

In the base year the real GDP = nominal GDP.

Correct.

In the base year the real GDP = nominal GDP.

Incorrect.

In the base year the real GDP = nominal GDP.

2 In 2011 GDP at constant prices is lower than GDP at current prices.

Correct. The statement is indeed true.

GDP at constant prices in 2011 is R2 838 258 million (real GDP) but GDP at current prices is R3 023 659 million (nominal GDP).

Incorrect. The statement is true.

GDP at constant prices in 2011 is R2 838 258 million (real GDP) but GDP at current prices is R3 023 659 million (nominal GDP).

3 In 2011 there was an increase in total production of goods and services as well as an increase in prices.

Correct. The statement is indeed true.

Real GDP increased from R2 748 008 million to R2 838 258 million, which indicates that more goods and services were produced. Since nominal GDP for 2011 was greater than real GDP for 2011, it indicates that prices increased as well.

Incorrect. The statement is true.

Real GDP increased from R2 748 008 million to R2 838 258 million, which indicates that more goods and services were produced. Since nominal GDP for 2011 was greater than real GDP for 2011, it indicates that prices increased as well.

4 Complete the following table by calculating the nominal and real GDP. Assume that the base year is 2012.

Year Production Prices Nominal GDP Real GDP
2011  

 

100 pairs of jeans

500 kg of rice

800 litres of milk

 

 

 R250 per pair of jeans

R40 per kg of rice

R20 per litre of milk

    
2012  

120 pairs of jeans

450 kg of rice

820 litres of milk

 

 R270 per pair of jeans

R45 per kg of rice

R22 per litre of milk

  
2013  

105 pairs of jeans

480 kg of rice

820 litres of milk

 

 R275 per pair of jeans

R46 per kg of rice

R24 per litre of milk

    
Click to Show Answer
Year Production Prices Nominal GDP Real GDP
2011  

 

100 pairs of jeans

500 kg of rice

800 litres of milk

 

 

 R250 per pair of jeans

R40 per kg of rice

R20 per litre of milk

 R25 000

R20 000

R16 000

R61 000

 R27 000

R22 500

R17 600

R67 100
2012  

120 pairs of jeans

450 kg of rice

820 litres of milk

 

 R270 per pair of jeans

R45 per kg of rice

R22 per litre of milk

 R32 400

R20 250

R18 040

R70 690

  

R32 400

R20 250

R18 040

R70 690

 
2013  

105 pairs of jeans

480 kg of rice

820 litres of milk

 

 R275 per pair of jeans

R46 per kg of rice

R24 per litre of milk

 R28 875

R22 080

R19 680

R70 635

  

R28 350

R21 600

R18 040

R67 990

 

To calculate the nominal GDP for 2011, you need to multiply the production by the current prices for 2011 and add it up.

To calculate the real GDP for 2011, you need to multiply the production by the prices for 2012 (constant prices) since 2012 is the base year.

Note that for the period 2011 to 2012, production increased in real terms whereas for the period 2012 to 2013 it decreased in real terms.