A country reported a nominal GDP of $100 billion in 2020 and $75 billion in 2019 and reported a GDP deflator of 125 in 2020 and 120 in 2019. What happened to real output and prices from 2019 to 2020?

Question

Quizplus · Accepted Answer

Real GDP is calculated by dividing the nominal GDP by the GDP deflator (then multiplying by 100). For 2019, real GDP = $75 billion / 1.20 = $62.5 billion. For 2020, real GDP = $100 billion / 1.25 = $80 billion. Thus, real output rose from $62.5 billion to $80 billion. The GDP deflator increased from 120 to 125, indicating that prices also rose.

A Country Reported a Nominal GDP of $100 Billion in 2020