Suppose nominal GDP in 1999 was 100 billion and in 2001 it was 260 billion. The general price index in 199 was 100, and in 2001 it was 180. Between 1999 and 2001, the real GDP rose by what present?

Ans:

a.) ANS. We will use the inflation formula for the GDP deflator here and compare results between the two years.

For 1999:

100 = [$100B / real GDP] x 100

So, real GDP must equal $100B.

For 2001:

180 = [$260B / Real GDP] x 100

1.8 = [$260B / Real GDP]

Real GDP = $260B / 1.8

So, real GDP must equal $144.44 B.

Therefore, real GDP increases by ( 44.44/100 * 100) = 44.44 % between 1999 and 2001.

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