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Calculating Real GDP and Deficits
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To calculate Real GDP using the GDP deflator, you need to divide nominal GDP by the GDP deflator and multiply by 100. If nominal GDP is $1,000 billion and the GDP deflator is 125, Real GDP would be calculated as ______.

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Choose the Best Answer

A

$800 billion

B

$1,250 billion

C

$1,000 billion

D

$750 billion

Understanding the Answer

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Answer

To calculate Real GDP using the GDP deflator, you start with the nominal GDP, which is the total value of goods and services at current prices. In this case, the nominal GDP is $1,000 billion. Next, you take the GDP deflator, which is a measure of price level changes, and divide the nominal GDP by it. Here, the GDP deflator is 125, so you divide $1,000 billion by 125, which gives you $8 billion. Finally, to adjust for inflation, you multiply this result by 100, making the Real GDP $800 billion.

Detailed Explanation

To find Real GDP, you divide $1,000 billion by 125, then multiply by 100. Other options are incorrect because This answer comes from thinking the GDP deflator increases the value; This option ignores the effect of inflation.

Key Concepts

Real GDP Calculation
Nominal GDP and GDP Deflator
Budget Deficits
Topic

Calculating Real GDP and Deficits

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easy level question

Cognitive Level

understand

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