Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![**Question 18: Calculating the GDP Deflator**
*Problem Statement:*
If nominal GDP is $5 million and the real GDP is $4 million, what is the GDP deflator?
*Options:*
a. 0.80
b. 0.75
c. 1.25
d. 0.20
*Explanation:*
To find the GDP deflator, use the formula:
\[ \text{GDP Deflator} = \frac{\text{Nominal GDP}}{\text{Real GDP}} \]
Inserting the given values:
\[ \frac{5 \, \text{million}}{4 \, \text{million}} = 1.25 \]
Thus, the correct answer is option c. 1.25.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F62273c70-b248-4b75-84ee-5ee5c83ce6ef%2Fbac95d9d-ef0e-4887-b585-1064035718bf%2Fn9uib9r_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Question 18: Calculating the GDP Deflator**
*Problem Statement:*
If nominal GDP is $5 million and the real GDP is $4 million, what is the GDP deflator?
*Options:*
a. 0.80
b. 0.75
c. 1.25
d. 0.20
*Explanation:*
To find the GDP deflator, use the formula:
\[ \text{GDP Deflator} = \frac{\text{Nominal GDP}}{\text{Real GDP}} \]
Inserting the given values:
\[ \frac{5 \, \text{million}}{4 \, \text{million}} = 1.25 \]
Thus, the correct answer is option c. 1.25.
![16. If nominal GDP was roughly $10,000 and the GDP deflator was 110 in 2016, real GDP is closest to
a. $8,263
b. $9,091
c. $6,591
d. $11,000
**Explanation of Concepts**:
- **Nominal GDP** refers to the market value of goods and services produced in an economy, unadjusted for inflation.
- **Real GDP** is the nominal GDP adjusted for inflation, reflecting the true value of goods and services at constant prices.
- **GDP Deflator** is a measure of the level of prices of all new, domestically produced, final goods and services in an economy.
**Calculation**:
To find the real GDP, use the formula:
\[
Real\: GDP = \frac{Nominal\: GDP}{GDP\: Deflator/100}
\]
Plug the values into the formula to find the real GDP:
\[
Real\: GDP = \frac{10,000}{110/100} = \frac{10,000}{1.10} \approx 9,091
\]
Thus, the correct choice is b. $9,091.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F62273c70-b248-4b75-84ee-5ee5c83ce6ef%2Fbac95d9d-ef0e-4887-b585-1064035718bf%2F3mrnyro_processed.jpeg&w=3840&q=75)
Transcribed Image Text:16. If nominal GDP was roughly $10,000 and the GDP deflator was 110 in 2016, real GDP is closest to
a. $8,263
b. $9,091
c. $6,591
d. $11,000
**Explanation of Concepts**:
- **Nominal GDP** refers to the market value of goods and services produced in an economy, unadjusted for inflation.
- **Real GDP** is the nominal GDP adjusted for inflation, reflecting the true value of goods and services at constant prices.
- **GDP Deflator** is a measure of the level of prices of all new, domestically produced, final goods and services in an economy.
**Calculation**:
To find the real GDP, use the formula:
\[
Real\: GDP = \frac{Nominal\: GDP}{GDP\: Deflator/100}
\]
Plug the values into the formula to find the real GDP:
\[
Real\: GDP = \frac{10,000}{110/100} = \frac{10,000}{1.10} \approx 9,091
\]
Thus, the correct choice is b. $9,091.
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