A country reported a nominal GDP of $115 billion in 2007 and $125 billion in 2006, and reported a GDP deflator of 85 in 2007 and 100 in 2006. What happened to real output and prices from 2006 to 2007?

Question

Quizplus · Accepted Answer

Real GDP is calculated by dividing nominal GDP by the GDP deflator and multiplying by 100. From 2006 to 2007, the nominal GDP increased, but the GDP deflator decreased, indicating that real output rose while prices fell.

A Country Reported a Nominal GDP of $115 Billion in 2007