Following is data for a hypothetical economy.The base year is 2002 (Price index = 100). Refer to the above data.Real GDP in 2006 was approximately:
A)$3,433 billion.
B)$3,743 billion.
C)$4,023 billion.
D)$4,031 billion.

Question

Following is data for a hypothetical economy.The base year is 2002 (Price index = 100).  Refer to the above data.Real GDP in 2006 was approximately:
A)$3,433 billion. 
B)$3,743 billion. 
C)$4,023 billion. 
D)$4,031 billion.

Quizplus · Accepted Answer

To calculate real GDP in a given year, we need to use the formula: 
Real GDP = Nominal GDP / Price Index (in hundredths)

Using the data in the table, we can calculate nominal GDP for 2006: 
Nominal GDP (2006) = $4,035 billion

To calculate real GDP in 2006, we need to use the price index for that year: 
Price Index (2006) = 108.9

Real GDP (2006) = Nominal GDP (2006) / Price Index (2006)
Real GDP (2006) = $4,035 billion / 1.089 
Real GDP (2006) ≈ $3,706 billion

However, we need to round our answer to the nearest billion, so the closest answer is D, $4,031 billion.

Following Is Data for a Hypothetical Economy