Question

The following table shows nominal GDP and an appropriate price index for a group of selected years. Compute real GDP. Indicate in each calculation whether you are inflating or deflating the nominal GDP data.

	Year	Nominal GDP, Billions	Price Index (2005 = 100)	Real GDP, Billions	Effect on Nominal GDP
	1978	2,293.80	40.40
	1988	5,100.40	66.98
	1998	8,793.50	85.51
	2008	14,441.40	108.48
	2018	20,501.00	128.59

Answer 1

Year	Nominal GDP (billions)	Price index (2005=100)	Real GDP (Billions)	Effect on Nominal GDP
1978	2293.8	40.4	5677.7	delating
1988	5100.4	66.98	7614.8	deflating
1998	8793.5	85.51	10283.6	deflating
2008	14,441.40	108.48	13312.5	inflating
2018	20,501	128.59	15942.9	inflating

Real GDP = (Nominal GDP / Price index) *100

Nominal GDP is deflating if Nominal GDP is less than Real GDP.

Nominal GDP is inflating if Nominal GDP is greater than Real GDP.