If nominal GDP increased by 6 during a year while the GDP de

If nominal GDP increased by 6% during a year, while the GDP deflator increased by 4%, by how much did real GDP change during the year?

Solution

GDP deflator = {(GDP in nominal value) / (GDP in real value)} × 100

Given, GDP in nominal value = 106

GDP in real value =?

GDP deflator = 104

Therefore, GDP in real value = (106 / 104) × 100 = 102

Answer: Real GDP would increase by (102 – 100 =) 2%