40) Suppose 2010 is the base year. From 2010 to 2018, the price index increases from 100 to 102.5. If nominal Gross Domestic Product (GDP) is $2,800 in 2018, then the real Gross Domestic Product (GDP) in 2018 is

Question

A) $2,700.
B) $2,800.
C) $2,732.
D) $2,870.

Answer 1

C) $2,732.

To calculate real GDP, we need to use the formula: Real GDP = Nominal GDP / Price Index

Using the given information, we can calculate the price index growth rate as follows:

Price Index Growth Rate = (Current Price Index - Base Price Index) / Base Price Index * 100%
Price Index Growth Rate = (102.5 - 100) / 100 * 100%
Price Index Growth Rate = 2.5%

Now, we can calculate the real GDP for 2018:

Real GDP = Nominal GDP / Price Index
Real GDP = $2,800 / (1 + 2.5/100)
Real GDP = $2,800 / 1.025
Real GDP = $2,732.69 (rounded to the nearest cent)

Therefore, the answer is option C) $2,732.