Use the following to answer questions:
-(Table: Per Capita GDP) Use Table: Per Capita GDP. If 2011 is the base year, real GDP in 2014 was:
A) $400.
B) $3,000.
C) $4,000.
D) $80,000.

Question

Use the following to answer questions: 
-(Table: Per Capita GDP) Use Table: Per Capita GDP. If 2011 is the base year, real GDP in 2014 was:
A) $400. 
B) $3,000. 
C) $4,000. 
D) $80,000.

Quizplus · Accepted Answer

To calculate real GDP in 2014, we need to use the GDP deflator. The GDP deflator for 2014 is 120 (in the table), and the formula is as follows:
Real GDP in 2014 = Nominal GDP in 2014 / GDP deflator in 2014
Nominal GDP in 2014 is $4,800, so plugging in the numbers we get:
Real GDP in 2014 = $4,800 / 120 = $40
However, since we are calculating real GDP, we need to use the base year prices. The table gives us the nominal and real GDP for 2011, which is the base year. Nominal GDP for 2011 is $3,000, and the GDP deflator for 2011 is 100 (by definition). Real GDP in 2011 is therefore $3,000 (same as the nominal GDP). Using this information, we can calculate the real GDP in 2014 in base year dollars:
Real GDP in 2014 (base year dollars) = Real GDP in 2014 / GDP deflator for 2011
Real GDP in 2014 (base year dollars) = $40 / 100 = $0.4
Therefore, real GDP in 2014 was $4,000 (base year dollars), which is the same as the real GDP in 2011.

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