NISM Certifications · NISM-Series-XV: Research Analyst · Economic Analysis
The nominal GDP of an economy grows from Rs 200 lakh crore to Rs 220 lakh crore in a year, and the GDP deflator rises from 125 to 130. Approximately what is the real GDP growth, using the deflator to convert nominal GDP to real GDP?
Real GDP growth is about 5.8%. Deflating nominal GDP gives 160 in the first year (200/1.25) and about 169.23 in the second (220/1.30). The ratio 169.23/160 gives growth of roughly 5.77%. The 10% figure is merely nominal growth, which includes inflation.
- A10.0%
- B4.0%
- C5.8%Correct
- D6.0%
Explanation
Real GDP year 1 = 200/1.25 = 160. Real GDP year 2 = 220/1.30 = 169.23. Growth = 169.23/160 - 1 = 5.77%, about 5.8%. The 10% figure is nominal growth, and 6.0% results from subtracting a 4% deflator rise from 10% only approximately (a different, inexact method).
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