Question

Example 2. In an economy, real GDP for base year is $200 billion and the GDP deflator for this year is 120. Calculate nominal GDP.

Answer 1

To find the nominal GDP with a real GDP of $200 billion and a GDP deflator of 120, multiply the real GDP by the deflator divided by 100, resulting in a nominal GDP of $240 billion.

Step-by-step explanation:

The question is asking to calculate the nominal GDP given the real GDP for the base year and the GDP deflator. The base year real GDP is stated as $200 billion, and the GDP deflator is 120. To find the nominal GDP, we use the formula:

Nominal GDP = Real GDP × (GDP deflator / 100)

Here, we substitute the given values:

Nominal GDP = $200 billion × (120 / 100)

Nominal GDP = $200 billion × 1.2

Nominal GDP = $240 billion

The nominal GDP in this case is $240 billion.