Examkin

Question

Difficulty: MediumReal vs Nominal National Income and Per Capita Income

In Year 1, an economy recorded a Nominal GDP of ₦800 billion with a base price index of 100. By Year 2, the Nominal GDP grew to ₦1,200 billion, the price index rose to 150, and the total population reached 50 million. What is the Real Per Capita Income of the economy in Year 2?

  1. ₦16,000Answer
  2. B
    ₦24,000
  3. C
    ₦20,000
  4. D
    ₦36,000

Answer

₦16,000
To find the Real Per Capita Income, Nominal GDP must first be adjusted for inflation using the Price Index: Real GDP=(Nominal GDPPrice Index)×100=(1,200150)×100=₦800 billion\text{Real GDP} = (\frac{\text{Nominal GDP}}{\text{Price Index}}) \times 100 = (\frac{1,200}{150}) \times 100 = \text{₦800 billion}. Dividing this Real GDP by the Year 2 population of 50 million yields ₦800,000,000,00050,000,000=₦16,000\frac{\text{₦800,000,000,000}}{50,000,000} = \text{₦16,000}.

Step-by-Step Solution

1
Calculate Real GDP for Year 2
Real GDP = (Nominal GDP / Price Index) × 100 = (₦1,200 billion / 150) × 100 = ₦800 billion
Nominal GDP includes price inflation; dividing by the price index eliminates inflation to show true output volume.
2
Calculate Real Per Capita Income for Year 2
Real Per Capita Income = Real GDP / Population = ₦800,000,000,000 / 50,000,000 = ₦16,000
Per capita real income measures the real output available per individual in the population.

Key Concept

Real vs Nominal GDP and Per Capita Income
Estimated Time:1m 30s
Rate this question

Topics

Real vs Nominal National Income and Per Capita Income

More questions from this topic