If GDP grows 8% in one year and inflation, measured by the GDP deflator, grows by 6% over the same time period, then real GDP has increased.

Question

Quizplus · Accepted Answer

Real GDP is calculated by adjusting nominal GDP for changes in the price level. The formula for calculating real GDP is: 
Real GDP = Nominal GDP / GDP Deflator

In this scenario, nominal GDP has grown by 8% and GDP deflator has grown by 6%. Using the formula above, we can calculate the real GDP growth as:
Real GDP growth = (Nominal GDP growth - Inflation) / (1 + Inflation) 
= (8% - 6%) / (1 + 6%) 
= 1.89%

Therefore, even though inflation has increased, real GDP still grew by 1.89%, indicating an increase in economic output adjusted for price changes.

If GDP Grows 8% in One Year and Inflation, Measured