A country reported a nominal GDP of $100 billion in 2007 and $75 billion in 2006, and reported a GDP deflator of 125 in 2007 and 120 in 2006. What happened to real output and prices from 2006 to 2007?

Question

Quizplus · Accepted Answer

To find real GDP, divide nominal GDP by the GDP deflator (and multiply by 100 to adjust for the deflator being a percentage). For 2006: $75 billion / 120 * 100 = $62.5 billion. For 2007: $100 billion / 125 * 100 = $80 billion. Real GDP increased from $62.5 billion to $80 billion, indicating real output rose. The GDP deflator increased from 120 to 125, indicating prices rose.

A Country Reported a Nominal GDP of $100 Billion in 2007