In 2007, the nominal Gross Domestic Product (GDP) of a small Asian country was 5% and the real GDP growth was 2%. What was the rate of inflation for this country?
  1. -3%
  2. 10%
  3. 3%
  4. 7%
Explanation
Answer - C - The rate of inflation for this country is 3%.

Key Takeaway: The nominal GDP of a country measures the value of all the goods and services produced expressed in current prices. Real GDP measures the value of all the goods and services produced expressed in the prices of some base year. Nominal GDP growth = real GDP growth + inflation. Therefore, inflation = 5% - 2% = 3%.
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