If a country has a GDP of $800 billion and the inflation rate is 2%, what will b

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Question: If a country has a GDP of $800 billion and the inflation rate is 2%, what will be the GDP in real terms after adjusting for inflation?

Options:

Correct Answer: $784 billion

Solution:

Real GDP = Nominal GDP / (1 + inflation rate) = 800 billion / 1.02 = $784 billion.

If a country has a GDP of $800 billion and the inflation rate is 2%, what will be the GDP in real terms after adjusting for inflation?

If a country has a GDP of $800 billion and the inflation rate is 2%, what will be the GDP in real terms after adjusting for inflation?

Step 1: Identify the nominal GDP, which is given as $800 billion.
Step 2: Identify the inflation rate, which is given as 2%. Convert this percentage to a decimal by dividing by 100, resulting in 0.02.
Step 3: Add 1 to the inflation rate in decimal form: 1 + 0.02 = 1.02.
Step 4: Divide the nominal GDP by the result from Step 3: $800 billion / 1.02.
Step 5: Calculate the result of the division: $800 billion / 1.02 = approximately $784 billion.
Step 6: The final result is the real GDP, which is $784 billion after adjusting for inflation.

Real GDP vs Nominal GDP – Real GDP adjusts nominal GDP for inflation to reflect the true value of goods and services produced.
Inflation Adjustment – Understanding how to adjust nominal values for inflation using the formula provided.