Calculating Real GDP given CPI (1 Viewer)

[DevilBoy]

Hey i know this might be a really stupid question but i can never seem to be able to figure out Real GDP when you're given CPI for 2 different years along with nominal GDP. So like this question for example from 2006

Year 1: GDP = 600bn CPI = 100
Year 2: GDP = 750bn CPI = 110
Year 3: GDP = 820bn CPI = 125

According to the information, what is the real GDP ($bn) in Year 3 compared to the base year?

How would you go about doing this...thanks guys

 

[as16]

Real GDP is Nominal GDP - Inflation
so what you would do is calculate the rate of inflation in Year 3 as compared to the base year say it is x%
then you would find x% of the GDP given for year 3 (say this is = y)

then Real GDP for year 3 = 820 bn - y bn

 

[Lis020393]

An easier way to do it would just be to do 820/1.25 when you treat CPI of 100 as the base value and then to get rid of inflation in Year 3, just take 125 as 1.25 and you should get the right answer

 

[DevilBoy]

Ahhh ok thanks guys, i was like trying to do 125-100/125 and then times that answer by 820. Then minus that answer from 820. But yea didnt work well. Thanks again, i always see this coming up in multiple choice questions, bout time i learnt how to do it properly lol