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 ______.

Correct Answer: 6,000 billion

Real GDP for 2000 = Nominal GDP for 2000 x (GDP Deflator for 1990/ GDP Deflator for 2000) = $9000 x (120/180) = $6000

User Contributed Comments 6

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.
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