Question

The nominal GDP is $100 billion and the GDP deflator is 125. Calculate the real GDP.

Answer 1

To calculate the real GDP with a nominal GDP of $100 billion and a GDP deflator of 125, you divide the nominal GDP by the deflator divided by 100, yielding a real GDP of $80 billion.

Step-by-step explanation:

Calculating Real GDP

To calculate the real GDP when the nominal GDP and the GDP deflator are known, you can use the following formula:

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

Given that the nominal GDP is $100 billion and the GDP deflator is 125, the calculation is as follows:

Real GDP = $100 billion ÷ (125 ÷ 100)

Real GDP = $100 billion ÷ 1.25

Real GDP = $80 billion

Thus, the real GDP, which accounts for inflation by utilizing the GDP deflator, is $80 billion.