Calculate the Real GDP in 1987

What is the real GDP in 1987 using 1988 as the base year if the nominal GDP in 1987 was $350 billion and the GDP deflator in 1988 was 1.25? To find the real GDP for 1987 with 1988 as the base year, divide the nominal GDP of $350 billion by the GDP deflator of 1.25 to get a real GDP of $280 billion.

Calculation:

Real GDP = Nominal GDP / GDP Deflator

Given data: Nominal GDP in 1987 = $350 billion, GDP deflator in 1988 = 1.25

Substitute the values into the formula:

Real GDP = $350 billion / 1.25 = $280 billion

Explanation:

To Calculate the Real GDP in 1987 using 1988 as the base year:

The GDP deflator is a measure of the average price level, so dividing the nominal GDP by the GDP deflator gives us the real GDP.

In this case, the nominal GDP in 1987 is $350 billion and the GDP deflator in 1988 is 1.25.

We adjust the nominal GDP to reflect 1988 prices to find the real GDP using the formula Real GDP = Nominal GDP / GDP Deflator.

Substituting the given values, we get Real GDP = $350 billion / 1.25 = $280 billion.

Conclusion:

Hence, the correct answer is a) $280 billion.

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