40) Suppose 2010 is the base year. From 2010 to 2018, the price index increases from 100 to 102.5. If nominal Gross Domestic Product (GDP) is $2,800 in 2018, then the real Gross Domestic Product (GDP) in 2018 is
A) $2,700.
B) $2,800.
C) $2,732.
D) $2,870.
C) $2,732.
To calculate real GDP, we need to use the formula: Real GDP = Nominal GDP / Price Index
Using the given information, we can calculate the price index growth rate as follows:
Price Index Growth Rate = (Current Price Index - Base Price Index) / Base Price Index * 100%
Price Index Growth Rate = (102.5 - 100) / 100 * 100%
Price Index Growth Rate = 2.5%
Now, we can calculate the real GDP for 2018:
Real GDP = Nominal GDP / Price Index
Real GDP = $2,800 / (1 + 2.5/100)
Real GDP = $2,800 / 1.025
Real GDP = $2,732.69 (rounded to the nearest cent)
Therefore, the answer is option C) $2,732.
To find the real Gross Domestic Product (GDP) in 2018, we need to adjust the nominal GDP using the price index.
First, calculate the price change from 2010 to 2018 using the formula: (Current Price Index - Base Price Index) / Base Price Index * 100.
price change = (102.5 - 100) / 100 * 100 = 2.5%.
Then, calculate the real GDP using the formula: Real GDP = Nominal GDP / (1 + price change).
real GDP = $2,800 / (1 + 0.025) ≈ $2,732.
Thus, the real Gross Domestic Product (GDP) in 2018 is approximately $2,732.
Therefore, the correct answer is C) $2,732.