Question

Suppose this year’s nominal GDP is $1,000 million and price level is 100. If nominal GDP increases by 2 percent and the price level goes up by 3 percent next year, calculate next year’s nominal GDP, price level, and real GDP.

Answer 1

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Answer
Nominal GDP Nominal year is 1000 million $
Nominal GDP next year = 1000 million + 2% of 1000 million
= 1020 million $
Price level this year is 100
Next year the price level is 103 ( as the level increases by 3%)

Real GDP next year
= (Nominal GDP / Prince level of current year ) * price level of previous year
= (1020 million / 103 ) * 100
=990.29 million $


Nominal GDP is 1020 million $
Price level is 103
Real GDP is 990.29 million $