Learning Path
Question & Answer1
Understand Question2
Review Options3
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Explore TopicChoose the Best Answer
A
The real GDP is $800 billion, indicating a recession, which may lead to increased government spending and a budget deficit.
B
The real GDP is $1 trillion, suggesting economic stability, which would typically not require changes in fiscal policy.
C
The real GDP is $1.25 trillion, indicating an expanding economy, which usually results in a budget surplus.
D
The real GDP is $750 billion, suggesting a severe economic downturn, likely necessitating cuts in government spending.
Understanding the Answer
Let's break down why this is correct
Answer
To find the real GDP, we need to adjust the nominal GDP using the GDP deflator. The nominal GDP is $1 trillion, and the GDP deflator is 125. To calculate the real GDP, we divide the nominal GDP by the GDP deflator (in decimal form), which is 1. 25. So, real GDP equals $1 trillion divided by 1.
Detailed Explanation
To find real GDP, we divide nominal GDP by the GDP deflator. Other options are incorrect because This answer assumes the economy is stable with no need for changes; This option suggests the economy is growing, but real GDP is actually lower.
Key Concepts
Real GDP calculation
Budget deficits and fiscal policy
GDP deflator implications
Topic
Calculating Real GDP and Deficits
Difficulty
hard level question
Cognitive Level
understand
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