ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Nominal GDP minus GDP deflator.
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Nominal GDP divided by GDP deflator multiplied by 100.
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Nominal GDP multiplied by price level.
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Nominal GDP divided by CPI.
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Detailed explanation-1: -When Nominal GDP is divided by GDP Deflator and then multiplied by 100, we get the value of the real GDP, thereby deflating the exaggerated value to the true value of the production of goods.
Detailed explanation-2: -The GDP deflator is a good indicator of the changes in the overall price level relative to the base year. To calculate the GDP deflator, divide nominal GDP by real GDP and multiply by 100.
Detailed explanation-3: -Divide the nominal GDP by the GDP deflator and multiply by 100. This will give you the real GDP.
Detailed explanation-4: -Since the price index in the base year always has a value of 100 (by definition), nominal and real GDP are always the same in the base year.
Detailed explanation-5: -Real GDP Calculation In general, calculating real GDP is done by dividing nominal GDP by the GDP deflator (R). For example, if an economy’s prices have increased by 1% since the base year, the deflating number is 1.01. If nominal GDP was $1 million, then real GDP is calculated as $1, 000, 000 / 1.01, or $990, 099.