Suppose nominal GDP was $360 billion in year 1 and $450 billion in year 2. The price index was 120 in year 1 and 125 in year 2. Between year 1 and year 2, real GDP
A) increased by $60 billion.
B) decreased by $32 billion.
C) increased by $100 billion.
D) increased by $117 billion.

Question

Quizplus · Accepted Answer

To calculate the real GDP growth, we adjust the nominal GDP by the price index to get the GDP in constant dollars. For year 1, the real GDP is $360 billion / (120/100) = $300 billion. For year 2, it's $450 billion / (125/100) = $360 billion. The increase in real GDP is $360 billion - $300 billion = $60 billion.

Suppose Nominal GDP Was $360 Billion in Year 1 and $450