Question

Suppose nominal GDP was $360 billion in 1990 and $450 billion in 2000. The appropriate price index (1985 = 100) was 120 in 1990 and 125 in 2000. Between 1990 and 2000, real GDP:____________

Answer 1

Answer:

Real GDP increased by 20% between 1990 and 2000

Explanation:

Real GDP (RGDP) = (Nominal GDP (NGDP) / Price level) x 100

RGDP, 1990 ($ Billion) = (360 / 120) x 100 = 300

RGDP, 2000 ($ Billion) = (450 / 125) x 100 = 360

Therefore, between 1990 and 2000, Real GDP

= (360 / 300) - 1

= 1.2 - 1

= 0.2

= 20%

Thus, the Real GDP increased by 20% between 1990 and 2000