ECONOMICS
GDP
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The price level increased that year.
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Someone who earned the same amount of income from the year before had more purchasing power.
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A dollar would buy less in this year compared to the year before.
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Government spending must have fallen in the second year.
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Detailed explanation-1: -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.
Detailed explanation-2: -Nominal GDP is simply equal to the sum of the current year price * current year quantity of all the goods. 2006: (7*400) + (8*225) + (10*175) = 2, 800 + 1, 800 + 1, 750 = $6, 350. 2007: (8*550) + (7*250) + (12*275) = 4, 400 + 1, 750 + 3, 300 = $9, 450. 2008: (9*900) + (6*275) + (15*275) = 8, 100 + 1, 650 + 4, 125 = $13, 875.
Detailed explanation-3: -Nominal Gross Domestic Product (GDP) and Real GDP both quantify the total value of all goods produced in a country in a year. However, real GDP is adjusted for inflation, while nominal GDP isn’t. Thus, real GDP is almost always slightly lower than its equivalent nominal figure.