Question

Suppose the GDP deflator was 200 in 2008 and 190 in 2009. In addition, nominal GDP was 1% higher in 2009 than in 2008. Given this information, the approximate rate of real GDP growth in 2009 was:

a) 0.5%
b) 1.0%
c) 1.5%
d) 2.0%

Answer 1

The approximate rate of real GDP growth in 2009 was -4%. Hence, none of the options matches the correct answer.

Step-by-step explanation:

To calculate the rate of real GDP growth in 2009, we need to compare the GDP deflator values of 2008 and 2009 and the percentage change in nominal GDP. The GDP deflator measures the level of prices in the economy relative to a base year.

In this case, the GDP deflator was 200 in 2008 and 190 in 2009, meaning that prices decreased by 5% between the two years. Given that nominal GDP was 1% higher in 2009 than in 2008, we can assume that this increase is only due to inflation since prices decreased.

Therefore, the real GDP growth rate in 2009 can be calculated by subtracting the inflation rate from the nominal GDP growth rate. The approximate rate of real GDP growth in 2009 is 1% - 5% = -4%.