A Level Economics (9708)•9708/13/M/J/23
Explanation
Adjusting Nominal GDP for Inflation Steps:
- Note year 1 real GDP of $500 billion uses base-year (year 1) prices.
- Inflation of 5% means year 2 price level is 1.05 times year 1.
- Real GDP in year 2 (in year 1 prices) = nominal GDP in year 2 ÷ 1.05.
- 547.6 billion.
Why A is correct:
- Real GDP formula deflates nominal GDP by the price index ratio (1 + inflation rate) to remove inflation effects.
Why the others are wrong:
- B: Equals nominal GDP, which includes inflation and overstates real output.
- C: Wrongly applies deflation, perhaps subtracting inflation from nominal without ratio.
- D: Assumes zero real growth, ignoring that nominal rose 15% versus 5% inflation.
Final answer: A
Topic: National income statistics
Practice more A Level Economics (9708) questions on mMCQ.me