Question

Suppose that nominal GDP increased in Econland from $10 Billion to $12 Billion (what is that percentage change? You will need to figure that out to answer the rest of the question!)
The inflation rate in Econland during this time was 5%

What happened to Real GDP Growth in Econland? (give the BEST answer)

Group of answer choices

A. It grew by 50%

B. It grew by 25%

C. It grew by 2%

D. It grew by 15%

Answer 1

The percentage nominal GDP change is 20%

The Real GDP growth is 15%

Explanation:

GDP is the final value (market) of all final services and goods produced during a financial year.

Since prices of the goods and services fluctuate with time, hence to get a real idea of economic growth, economist calculate two types of  

Nominal GDP- GDP of the economy calculated at the current prices. This GDP does not factor the inflationary effect on the GDP calculation.

Real GDP- This is the original increment/decrement in the net price of final goods and services in a year. Real GDP adjusts the inflationary effects component on the GDP calculation.

Nominal GDP is the previous year- $10 billion

Final nominal GDP- $12 billion

% change in the nominal GDP= (final GDP-GDP in the previous year) *100/GDP in the previous year

% change in the nominal GDP= (12-10) *100/10

% change in the nominal GDP=20%

Inflation in the Econland= 5%

Real GDP change= Change in Nominal- inflation  rate

Real GDP change=20%-5%

Real GDP change=15%