If nominal GDP rose in one year from $2,000 billion to $2,400 billion at the same time that a price index rose from 200 to 220, then real GDP would
A) have risen by approximately 20 percent.
B) have fallen by approximately 10 percent.
C) have risen by approximately 10 percent.
D) have fallen by approximately 20 percent.
E) not be determinable from the information provided.

Question

Quizplus · Accepted Answer

Real GDP adjusts nominal GDP for inflation to reflect the true growth in an economy's output. To calculate the change in real GDP, we use the formula: Real GDP Growth = [(Nominal GDP in current year / Price Index in current year) - (Nominal GDP in previous year / Price Index in previous year)] / (Nominal GDP in previous year / Price Index in previous year). Plugging in the given values: [(2,400 / 220) - (2,000 / 200)] / (2,000 / 200) = 10.91 - 10 / 10 = 0.091 or 9.1%, which is approximately 10 percent.

If Nominal GDP Rose in One Year from $2,000 Billion