Question

If inflation is 2% and nominal GDP grew by 4% then during the same period real GDP changes by how much?

Answer 1

The answer is 2%.

In order to find the real GDP figure, the Fisher equation needs to be applied as follows:

r= i - π

where,

• r is the real interest rate
• i stands for the norminal interest rate
• π stands for the inflation rate

Therefore:

r= i - π = 4% - 2%= 2%

Answer 2

Answer:B. 2%

Explanation: