Final answer:
To calculate the real GDP with a nominal GDP of $100 billion and a GDP deflator of 125, you divide the nominal GDP by the deflator divided by 100, yielding a real GDP of $80 billion.
Step-by-step explanation:
Calculating Real GDP
To calculate the real GDP when the nominal GDP and the GDP deflator are known, you can use the following formula:
Real GDP = Nominal GDP ÷ (GDP Deflator ÷ 100)
Given that the nominal GDP is $100 billion and the GDP deflator is 125, the calculation is as follows:
Real GDP = $100 billion ÷ (125 ÷ 100)
Real GDP = $100 billion ÷ 1.25
Real GDP = $80 billion
Thus, the real GDP, which accounts for inflation by utilizing the GDP deflator, is $80 billion.