Real GDP in year 10 with nominal $15 trn and price index 150 is:

Rationale

Real GDP in year 10 with nominal $15 trn and price index 150 is $10 trn.

To calculate the Real GDP, we use the formula: Real GDP = Nominal GDP / (Price Index / 100). Substituting the given values, we have Real GDP = $15 trillion / (150 / 100) = $10 trillion.

A ($15 trn) YOUR ANSWER

This choice represents the nominal GDP without adjusting for inflation, which does not accurately reflect the real purchasing power or economic output in year 10. Real GDP must account for changes in price levels, and thus cannot equal nominal GDP when a price index is provided.

B ($10 trn) CORRECT

This is the correct answer, calculated by adjusting the nominal GDP of $15 trillion for the price index of 150. By dividing $15 trillion by 1.5 (which is 150/100), we find that the Real GDP is indeed $10 trillion, reflecting the true economic output without inflationary distortions.

C ($22.5 trn) YOUR ANSWER

This figure incorrectly suggests an inflated adjustment of the nominal GDP. One might arrive at this number by misunderstanding the calculation process, such as mistakenly multiplying nominal GDP rather than dividing it by the price index. It does not represent a valid Real GDP calculation.

D ($7.5 trn) YOUR ANSWER

Choosing this option implies a miscalculation where the nominal GDP is improperly adjusted. To reach this figure, one might incorrectly divide the nominal GDP by a higher number than the price index, leading to an underestimation of the Real GDP, which does not align with the correct formula.

Conclusion

Real GDP offers a more accurate representation of economic activity by adjusting nominal GDP for inflation. In this scenario, the calculation demonstrates that Real GDP in year 10, with a nominal GDP of $15 trillion and a price index of 150, amounts to $10 trillion. Other choices either ignore inflation adjustments or misapply the calculation method, leading to incorrect values.

Real GDP in year 10 with nominal $15 trn and price index 150 is:

Real GDP in year 10 with nominal $15 trn and price index 150 is $10 trn.

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