If nominal GDP increases at a rate of 10 per cent per year while the GDP deflator increases at 8 per cent per year, then:
A) real GDP remains constant.
B) real GDP rises by 10 per cent.
C) real GDP falls by 8 per cent.
D) real GDP rises by 2 per cent.

Question

Quizplus · Accepted Answer

Real GDP is calculated by adjusting the nominal GDP for inflation or deflation, using the GDP deflator. In this case, if nominal GDP increases by 10% and the GDP deflator (a measure of price changes) increases by 8%, the real GDP growth is the difference between these rates, which is 2%.

If Nominal GDP Increases at a Rate of 10 Per