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A country's nominal GDP rose by 12% while prices rose by 8%. Approximately how much did real output rise?

Answer and explanation

Correct answer: About 4%

Nominal GDP reflects both changes in prices and changes in the quantity of output. For a quick approximate calculation, real GDP growth is nominal GDP growth minus the inflation rate: 12% − 8% = 4%. The exact rate using the GDP relationship is (1.12/1.08 − 1) × 100, about 3.7%, which rounds to approximately 4%. Therefore C is correct; adding the rates would wrongly double-count inflation.

Related tags

Nominal GdpReal GdpInflationNumericalGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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