### CFA Practice Question

There are 539 practice questions for this study session.

### CFA Practice Question

Given the following information, and measured in terms of 1990 prices, the real GDP in 2000 was ______. Real GDP for 2000 = Nominal GDP for 2000 x (GDP Deflator for 1990/ GDP Deflator for 2000) = \$9000 x (120/180) = \$6000

User Comment
jonan203 HP12C:

9000<enter><enter>
120<enter>
180<divide><times>
= 6000
sailkanch Isnt Real GDP = (Nomoinal GDP/GDP Deflator)* 100 ?
ankurwa10 the formula is --> Real GDP = Nominal GDP x 100 / GDP deflator.

So, Real GDP x GDP deflator = Nominal GDP /100

I think I am confused now.
Kevdharr Just divide the GDP deflator for a given year (120) by 100. Here, 120/100 = 1.2. Then multiply the nominal GDP for that same year (5,000) by 1.2. 5,000 * 1.2 = 6,000.
greglong1 The trick here is that we are given nominal values for both years and the deflators are referencing a DIFFERENT base year (perhaps 1980 dollars). Typically on an exam you're just given a single base year and you don't need to do the ratio to standardize the deflators.

In base year dollars, the 1990 GDP is 5,000/1.2 or \$4,166 and the 2000 GDP is 9,000/1.8 or \$5,000. 20% real growth from 1990, or \$6000 in 1990 dollars.
pigletin yes the formula is real = nom / deflator *100, this assumes 1990 is the base year, thus deflator is 1. but in this question, 1990 is not the base year.