Question 65

Real GDP in year 10 is $10 trn.

To calculate the Real GDP, the formula used is Real GDP = Nominal GDP / (Price Index / 100). With a nominal GDP of $15 trillion and a price index of 150, Real GDP equals $15 trillion / (150 / 100), which simplifies to $10 trillion.

A) $15 trn

This option represents the nominal GDP and does not account for inflation or the price index. Real GDP must be adjusted for price changes to reflect the true economic output, making this option incorrect.

B) $10 trn

This option is correct as it accurately reflects the Real GDP after adjusting the nominal GDP for the price index. The calculation shows that dividing $15 trillion by 1.5 (the price index converted to a decimal) yields $10 trillion.

C) $22.5 trn

This option is incorrect as it suggests a miscalculation where the nominal GDP is inflated rather than adjusted for the price index. The Real GDP should be lower than the nominal GDP when the price index is above 100.

D) $7.5 trn

This option is also incorrect. It implies an incorrect adjustment for the price index, as the calculation of Real GDP does not lead to this figure. A basic understanding of how to adjust nominal GDP reveals this figure to be inaccurate.

Conclusion

The correct answer is $10 trillion, as it represents Real GDP adjusted for inflation using the provided price index. Other options fail to accurately reflect the necessary calculations, either by presenting nominal GDP figures or by applying incorrect adjustments for inflation. Understanding how to adjust nominal values is crucial in accurately measuring economic output.