If nominal GDP increased by 5 percent and the GDP deflator increased by 3 percent, then real GDP ______ by ______ percent.
A) increased; 2
B) decreased; 2
C) increased; 8
D) decreased; 8

Question

Quizplus · Accepted Answer

Real GDP is calculated by dividing nominal GDP by the GDP deflator, then multiplying by 100.

Real GDP = (Nominal GDP / GDP Deflator) x 100

If nominal GDP increases by 5% and the GDP deflator increases by 3%, we can calculate real GDP as follows:

Real GDP = (1.05 / 1.03) x 100 = 101.94

Therefore, real GDP increased by 1.94%, or approximately 2%.

If Nominal GDP Increased by 5 Percent and the GDP