Hint for HW #2

For some of the problems you need to find real GDP. If you have nominal GDP and the price index (the GDP deflator), you can find real GDP.

If we know:

Nominal GDP
-------------- x 100 = GDP deflator
Real GDP

Then an algebraic manipulation of the above equation gives us:

Nominal GDP
-------------- x 100 = Real GDP
GDP deflator

If, on the other hand, you are given real GDP and the price index, you can find nominal GDP by rearranging that first equation to

Real GDP x GDP deflator
-------------------------- = nominal GDP
100

Algebra comes in handy in our understanding of economic relationships.

Note how it asks for real GDP in 1996 prices. A common inquiry from students is "I don't know what nominal GDP or the price index was in 1996. Well, that doesn't matter. The point is since the deflator is in terms of prices that prevailed in 1996 already (it is the stated "base year"), the real GDP will be in 1996 dollars. (And you can also figure out that the deflator in 1996 is going to equal 100 anyway.)