A nation's nominal GDP is $1.5 trillion with an inflation rate of 5%. ∴ Real GDP is 30 trillion.
Explanation:
Key Terms
GDP deflator: A measure of the level of prices of all new, domestically produced, final goods and services in an economy. It is calculated by computing the ratio of nominal GDP to the real measure of GDP.
real GDP: A macroeconomic measure of the value of the economy’s output adjusted for price changes (inflation or deflation).
nominal GDP: A macroeconomic measure of the value of the economy’s output that is not adjusted for inflation.
GDP deflator( inflation rate = 5% ) =
[tex]$\frac{\text { Nominal GDP }}{\text { Real GDP }} \times 100$[/tex]
Inflation rate = [tex]\frac{1.5}{\text {Real } G D P} \times 100[/tex]
[tex]\text {Real } G D P=\frac{1.5}{5} \times 100[/tex] trillion
∴ Real GDP is 30 trillion.
