Question

In 2015, the nominal GDP of a country was $250 billion. In 2018, it rose to $350 billion. In 2015, the GDP deflator was 100 and in 2018, it was 175. In 2015, real GDP was:

a. $180 billion
b. $250 billion
c. $435 billion
d. $500 billion

Answer 1

The real GDP in 2015 was $250 billion, calculated using the formula Real GDP = Nominal GDP ÷ (GDP Deflator ÷ 100) with a nominal GDP of $250 billion and a GDP deflator of 100.

Step-by-step explanation:

The student's question is about calculating the real GDP for the year 2015 using the provided nominal GDP and the GDP deflator. To calculate real GDP, we use the formula:

Real GDP = (Nominal GDP) ÷ (GDP Deflator ÷ 100)

Given that the nominal GDP in 2015 was $250 billion and the GDP deflator was 100, we can plug these values into the formula:

Real GDP = $250 billion ÷ (100 ÷ 100) = $250 billion

Therefore, the real GDP in 2015 was $250 billion, which matches option b. The GDP deflator serves as a way to account for inflation by converting the nominal GDP into real GDP. This allows us to measure the true growth of the economy by removing the effects of changing price levels.