Answer to Question #209192 in Macroeconomics for kev

Question

nominal gdp in year 1 is 500. if gdp deflator doubles in year 8 while real output increases by 60 percent, what's nominal output in year 8

Answer 1

Assuming 1 year as a base year 

 GDP Deflator= (Nominal GDP)$\div$ (Real GDP)x100

   $x=(500\times× 100\times× 100)\div 60$

  $x=83,333.33$

As mentioned above, if GDP deflator doubles in year 8 while real output increased by 60%

then GDP deflator in year$8= 83,333.33\times 2$

                  $= 166,666.66$

therefore Nominal GDP in year 8= (GDP deflator in year 8$\times$ real GDP)$\div$ 100

                           $=(166,666.66\times0.6)\div 100$

                           $=999.99$

Nominal output= (Nominal GDP$\div$ Real GDP)(100)

             $= 999.99\div 0.6(100)$

             $= 166,665$

The nominal output in 8 year will be = 166,665