If the nominal GDP rises by 3 percent and the price level rises by 5 percent, then the real GDP ________ by ________ percent.
A) rises; 8
B) falls; 8
C) rises; 2
D) falls; 2
E) None of these answers is correct.

Question

Quizplus · Accepted Answer

Real GDP is calculated by adjusting nominal GDP for inflation using the GDP deflator. In this scenario, the GDP deflator would be 105 (5% increase in price level) and real GDP would be calculated as (Nominal GDP/GDP deflator) * 100. Plugging in the values, we get (103/1.05)*100 = 98.1, which is a decrease of 2% from the previous real GDP level.

If the Nominal GDP Rises by 3 Percent and the Price