Question

In 1980, the nominal value of GDP was R15400 million, while in 2000, the nominal value of GDP was R17690 million. Using 1970 as the base year (i.e GDP deflator of 1970 = 100), the GDP deflator of 1980 was 136 and the GDP deflator of 2000 was 162. Using 1970s prices, we can say that real GDP between 1980 and 2000 has:
A. Increased by approximately R2290 million

B. Increased by approximately R400 million

C. Decreased by approximately R 2300 million

D. Cannot be answered with the given information

E. Decreased by approximately R400 million

Answer 1

E. Decreased by app. R400 M.

First get the Real GDP of 1980 by dividing 1980's nominal GDP by 1980's price (that's, 15400M/136). Then, multiply the answer by the base year's deflator-- 100. You now have 1132.35 M as your 1980 real GDP. Now, compute for the 2000's real GDP (that's, 17690M/162.) Then divide that by 100, we now have 10919M. Get the difference.

Answer 2

E. Decreased by approximately R400 million

real gdp of 1980 = nominal gdp / gdp deflator.=15400/1.36=11323.49
real gdp of 2000 = nominal gdp / gdp deflator.=17690/1.62=10919.749

so gdp has decreased by 403.73M hence option E