CIMA BA1 · Chapter 1 · Question 8 of 10
Nominal GDP grows by 7% in a year while the GDP deflator rises by 3%. Using the exact method (dividing by the change in the deflator, not the approximation of subtracting the inflation rate from nominal growth), what is the growth in real GDP (to one decimal place)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) 3.9%
Explanation
Real growth = (1 + nominal growth) / (1 + inflation) - 1 = 1.07 / 1.03 - 1 = 0.0388, i.e. 3.9%. Simply subtracting inflation (7% - 3% = 4.0%) is only an approximation.
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