Question

. Sri Lanka reported nominal GDP of $85 billion in 2017 and $89 billion in 2018. It also reported a GDP deflator of 125 in 2018 and 130 in 2017. Between 2017 and 2018,

a. real output and the price level both rose.

b. real output rose and the price level fell.

c. real output fell and the price level rose.

d. real output and the price level both fell.

Answer 1

b. real output rose and the price level fell.

Explanation :

2017:

GDP deflator = (nominal gdp /real gdp) *100

130=(85 billion /real gdp) *100

130/100=85 billion /real gdp

1.30=85 billion/real gdp

Real gdp =85 billion /1.30

Real gdp =65.38 billion.

2018:

GDP deflator = (nominal gdp /real gdp) *100

125 =(89 billion /real gdp) *100

125/100=89 billion /real gdp

1.25=89 billion/real gdp

Real gdp =89 billion /1.25

Real gdp =71.2 billion

Real output is rose from 65.38 billion to 71.2 billion.

GDP deflator decrease from 130 to 125 so, price level decrease.