Answer:
The correct option is the country's real GDP declined between years 3 and 4.
Explanation:
The data given in the question are first properly presented before answering the question as follows:
Year Nominal GDP Price Index
1 $35 90
2 40 100
3 45 110
4 48 120
5 56 140
The decline in real GDP can now be determined by calculating the the real GDP for each year using the following formula:
Real GDP in a particular year = (Nominal GDP in the year / Price index in the year) * 100 ................... (1)
Using equation (1), we therefore have:
Real GDP in Year 1 = ($35 / 90) * 100 = $38.89
Real GDP in Year 2 = ($40 / 100) * 100 = $40.00
Real GDP in Year 3 = ($45 / 110) * 100 = $40.91
Real GDP in Year 4 = ($48 / 120) * 100 = $40.00
Real GDP in Year 4 = ($56 / 140) * 100 = $40.00
From the above calculations, it can be seen that the real GDP declined from $40.91 in Year 3 to $40.00 in Year 4. Therefore, the correct option is the country's real GDP declined between years 3 and 4.
