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Measuring real GDP growth

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If GDP increases in nominal terms from $600 billion in 1994 to $663 billion in 1996 and the price index (1992=100) rises from 120 to 130, how much real growth (in 1992 dollars) in GDP occurred between 1994 and 1996?

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Solution Summary

The solution shows the step-by-step computation of the real Gross Domestic Product (GDP) growth.

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Given Data:
Year Nominal GDP Price index
1994 $600 Billion 120%
1996 $663 Billion 130%

Step by Step Computation:
1.) Computation of the 1994 Real GDP:
Real GDP1994 = 1994 Nominal GDP / 1994 Price Index
Real GDP1994 = $600 B /(120%)
Real GDP1994= $600 B / 120%
Real GDP1994= $600 B / ...

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