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Difficulty: EasyReal vs Nominal National Income and Per Capita Income

In a given fiscal year, a nation recorded a Nominal Gross Domestic Product (GDP) of ₦600 billion\text{₦}600\text{ billion} while its GDP deflator stood at 150150. Calculate the Real GDP of the nation for that year in billions of Naira.

Answer: 400 billion Naira

Answer

The Real GDP of the nation for that year is ₦400 billion.
Real GDP isolates physical output change from price fluctuations by dividing Nominal GDP by the price level index (GDP deflator) and scaling by the base value of 100. Substituting ₦600 billion and 150 gives 600150×100=400\frac{600}{150} \times 100 = 400 billion Naira.

Step-by-Step Solution

1
Identify the relationship between Nominal GDP, Real GDP, and the GDP Deflator.
The formula to adjust Nominal GDP for price inflation is Real GDP=(Nominal GDPGDP Deflator)×100\text{Real GDP} = \left( \frac{\text{Nominal GDP}}{\text{GDP Deflator}} \right) \times 100.
The GDP deflator measures the level of prices relative to the base year.
2
Substitute Nominal GDP (₦600 billion) and GDP Deflator (150) into the equation.
Real GDP=(600150)×100=4×100=400\text{Real GDP} = \left( \frac{600}{150} \right) \times 100 = 4 \times 100 = 400.
Dividing Nominal GDP by the GDP deflator strips out the price increase to reflect physical output quantity.

Key Concept

Adjustment of Nominal GDP to Real GDP using the price index/deflator.
Estimated Time:45s
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Topics

Real vs Nominal National Income and Per Capita Income

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