Suppose that the nominal GDP of an economy were $10,000 in 2000 and
$10,500 in 2001. If the price index were 100 in 2000 and 105 in 2001, then real GDP

Question

Quizplus · Accepted Answer

Real GDP is calculated by adjusting the nominal GDP for inflation to reflect the true value of goods and services produced. In this case, the nominal GDP increased from $10,000 to $10,500, which is a 5% increase. However, the price index also increased by 5% (from 100 to 105), indicating that the entire increase in nominal GDP is due to inflation. Therefore, the real GDP, which accounts for inflation, remains constant from 2000 to 2001.

Suppose That the Nominal GDP of an Economy Were $10,000