Truscan's nominal GDP rose by 7% between 2016 and 2017.If its inflation rate was 2%,by how much did its real GDP increase?

Question

Quizplus · Accepted Answer

To calculate the real GDP growth, we need to adjust the nominal GDP for inflation. Thus, the real GDP growth can be calculated as (1 + nominal GDP growth rate) / (1 + inflation rate) - 1. Applying this formula, we get:

Real GDP growth = (1 + 0.07) / (1 + 0.02) - 1 = 0.05 or 5%

Therefore, the real GDP increased by 5%. Option B is the correct answer.

Truscan's Nominal GDP Rose by 7% Between 2016 and 2017