in 2002 the nominal gdp was 10642 in billions of dollars and

in 2002 the nominal gdp was 10,642 in billions of dollars and in 2012 the gdp was 15,676 in billions of dollars. The base year gdp deflator for 2002 was 92.2 and 2012 was 115.4. what was real gdp in 2002 measured in 2005 prices?

Solution

First of all we can measure what is real gdp during both periods

GDP deflator = Nominal GDP/ Real GDP * 100

92.2 = 10,642/ RGDP* 100

RGDP = 11,542

This is for year 2002

In 2012

GDP deflator = Nominal GDP/ Real GDP * 100

115.4 = 15,676/ RGDP * 100

RGDP= 13,584

We have to know 2005 price level

We can calculate GDP deflator by measuring the increase for 10 years

115.4-92.2= 23.2

for each year it would be 2.32%

So for 3 years it would be 2.32* 3= 6.96

so you can add 6.96 to 92.2 which would become 99.16

real GDP in 2002 using 2005 prices

GDP deflator = Nominal GDP/ Real GDP * 100

99.16 = 10,642/ RGDP* 100

RGDP = 10,642*100/99.16

RGDP = 10,732 at 2005 price

Please get back to me if any further help is needed. Thank you