Question

Over a five-year period, (nominal) GDP in a nation increased from $10 trillion to $15 trillion, while the GDP price deflator increased from 100 to 125. Approximately how much is GDP in year five, stated in terms of year-one dollars?

Answer 1

The GDP in year five, stated in terms of year-one dollars, is approximately $12 trillion.

Step-by-step explanation:

This can be calculate using the following formula:

Real GDP in year five = Nominal GDP in year five / (GDP price deflator in year five / GDP price deflator in year-one) ................... (1)

Where;

Real GDP in year five = Amount of GDP in year five, stated in terms of year-one dollars = ?

Nominal GDP in year five = $15 trillion

GDP price deflator in year five = 125

GDP price deflator in year-one = 100

Substituting the into equation (1), we have:

Real GDP in year five = $15 / (125 / 100) = $15 / 1.25 = $12 trillion

Therefore, the GDP in year five, stated in terms of year-one dollars, is approximately $12 trillion.