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24 June, 07:13

An analyst needs to adjust the nominal GDP for the years 2000 and 2010 into real terms to conclude his comparison analysis. The nominal GDP in 2000 was $672 billion and $1,690 billion for 2010; the real interest rate was 6.79% in 2000 and 3.71% in 2010; the 2000 deflator was 24 and 51 in 2010. What is the real gain?

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  1. 24 June, 07:46
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    The answer is: the real gain in real GDP between 2010 and 2000 is 18.34%

    Explanation:

    First we have to determine the real GDP using the GDP deflator.

    GDP deflator = (nominal GDP / real GDP) x 100

    For year 2000:

    24 = ($672 billion / real GDP) x 100

    2,400 = $672 billion / real GDP

    real GDP = $0.28 billion

    For year 2010:

    51 = ($1,690 billion / real GDP) x 100

    5,100 = $1,690 billion / real GDP

    real GDP = $0.331 billion

    To calculate the real gain between real GDP from year 2000 to year 2010, we divide real GDP 2010 over real GDP 2000 and subtract 1:

    ($0.331 billion / $0.28 billion) - 1 = 0.1834 x 100% = 18.34%
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