If in some year nominal GDP was $40 billion and the GDP deflator was 70, what was real GDP?

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BlackTom AI · Accepted Answer

Question restatement: If in some year nominal GDP was $40 billion and the GDP deflator was 70, what was real GDP?

Option list: 1) $175.0 billion 2) $57.1 billion 3) $30.0 billion 4) $110.0 billion

To compute real GDP, you adjust nominal GDP by the price level using the formula Real GDP = Nominal GDP / (Deflator / 100).

Option 1: $175.0 billion. This would require dividing by a deflator well below 1 (or multiplying by a large factor), which is inconsistent with a deflator of 70. It overstates real GDP relative to the given nominal worth. This demonstrates a misapplication of deflator mechanics.

Option 2: $57.1 billion. Calculation check: 40 / (70/100) = 40 / 0.70 = 57.142857... ≈ $57.1 billion. This aligns exactly with the standard real GDP formula when the deflator is 70.

Option 3: $30.0 billion. This would imply dividing by a deflator of 1.333... (since 40 / 1.333... ≈ 30), which contradicts the given deflator value of 70. It ignores the correct scaling by the price level and represents a miscalculation.

Option 4: $110.0 billion. This would require multiplying nominal GDP by a factor greater than 2, or using a deflator well below 1, which contradicts the fact that the deflator is 70. It reflects a reversal of the real-to-nominal relationship.

Summary of reasoning: The only calculation that faithfully applies Real GDP = Nominal GDP / (Deflator / 100) with Nominal = 40 and Deflator = 70 yields 40 / 0.70 = 57.1, matching option 2. The other options arise from misapplying or misinterpreting the deflator, such as treating it as a multiplier greater than 1, or using an incorrect price-level adjustment, which leads to implausible results given the provided numbers.

If in some year nominal GDP was $40 billion and the GDP deflator was 70, what was real GDP?

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