Calculating Real GDP (1 Viewer)

[Frie]

How do you do this question? From HSC 2006 Question 12

I ended up with the answer B using the following working out however the answer is A:

Inflation Rate = 125-110/110 = 13.6%

Real GDP = Nominal (820) / 1.136 = 721.6

My working out ignores the second part "compared to the base year" as I'm not sure how to implement that part.

 

[JFX]

It says compared to the base year so you need to compare year 3 to year 1.

So rather than using year 3 and 2, use year 3 and year 1 to calculate the inflation rate and your real GDP.

So Inflation Rate = 125-100/100 = 25%

Real GDP = Nominal (820) / 1.25 = $656.0

 

[Frie]

Oh right, now it makes more sense. Thank you.