Answer :
To adjust the nominal GDP for a given year in order to obtain the real GDP, we need to account for the effects of inflation. Nominal GDP represents the market value of all final goods and services produced in a year, evaluated at current year prices. Real GDP, on the other hand, adjusts nominal GDP to remove the effects of inflation and reflects the market value of goods and services in constant prices.
Real GDP is calculated by dividing nominal GDP by the price index (expressed as a fraction of 100), then multiplying by 100 to adjust for percentage. This can be mathematically represented as:
[tex]\[ \text{Real GDP} = \left(\frac{\text{Nominal GDP}}{\text{Price Index}}\right) \times 100 \][/tex]
Given this formula, it is clear that:
1. We divide nominal GDP by the price index, not multiply.
2. The given statement claims that we should multiply nominal GDP by the price index to obtain real GDP, which is not correct.
Therefore, the correct answer to the statement "To adjust nominal GDP for a given year in order to obtain real GDP, we multiply the nominal GDP by the price index" is:
False
Real GDP is calculated by dividing nominal GDP by the price index (expressed as a fraction of 100), then multiplying by 100 to adjust for percentage. This can be mathematically represented as:
[tex]\[ \text{Real GDP} = \left(\frac{\text{Nominal GDP}}{\text{Price Index}}\right) \times 100 \][/tex]
Given this formula, it is clear that:
1. We divide nominal GDP by the price index, not multiply.
2. The given statement claims that we should multiply nominal GDP by the price index to obtain real GDP, which is not correct.
Therefore, the correct answer to the statement "To adjust nominal GDP for a given year in order to obtain real GDP, we multiply the nominal GDP by the price index" is:
False
