Suppose that in a particular country, nominal gross domestic product (GDP) grew 8 percent, and the GDP deflator increased by 10 percent. The countrys growth rate of Real GDP would be approximately equal to

GDP

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

Suppose that in a particular country, nominal gross domestic product (GDP) grew 8 percent, and the GDP deflator increased by 10 percent. The country’s growth rate of Real GDP would be approximately equal to

A	-2%
B	-8%
C	0.8%
D	2%

Explanation:

Detailed explanation-1: -If nominal GDP is $8 trillion and real GDP is $10 trillion, then the GDP deflator is: a. 80, and this indicates that the price level has decreased by 20 percent since the base year.

Detailed explanation-2: -If nominal GDP is $10 trillion and real GDP is $8 trillion, then the GDP deflator is: 125, and this indicates that the price level has increased by 25 percent since the base year.

Detailed explanation-3: -To calculate the growth rate, we need to divide the difference between the current year GDP and the previous year GDP (which shall increase the value of GDP) and divide the result by the last year’s GDP.

Detailed explanation-4: -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.

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ECONOMICS (CBSE/UGC NET)

ECONOMICS

GDP