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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 one year?

Options:

  1. $784 billion
  2. $800 billion
  3. $816 billion
  4. $820 billion

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 b

Practice Questions

Q1
If a country has a GDP of $800 billion and the inflation rate is 2%, what will be the GDP in real terms after one year?
  1. $784 billion
  2. $800 billion
  3. $816 billion
  4. $820 billion

Questions & Step-by-Step Solutions

If a country has a GDP of $800 billion and the inflation rate is 2%, what will be the GDP in real terms after one year?
  • 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, so 2% becomes 0.02.
  • Step 3: Add 1 to the inflation rate in decimal form. So, 1 + 0.02 = 1.02.
  • Step 4: Divide the nominal GDP by the result from Step 3. So, $800 billion / 1.02.
  • Step 5: Calculate the result of the division. This gives you the real GDP after one year.
  • Nominal vs. Real GDP – Understanding the difference between nominal GDP (current prices) and real GDP (adjusted for inflation) is crucial for economic analysis.
  • Inflation Adjustment – The process of adjusting nominal values to account for inflation to reflect the true economic value over time.
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