GDP - Gross Domestic Product GDP Deflator and Inflation Questions and Answers

Question 1

An economy's nominal GDP was $15 trillion in Year 1 and $16.5 trillion in Year 2.
The real GDP was $14 trillion in Year 1 and $14.8 trillion in Year 2.
What was the approximate inflation rate between Year 1 and Year 2 as measured by the GDP deflator?

Accepted Answer

D) 4.1%

Answer

A) 10.0%

Answer

B) 3.2%

Answer

C) 5.7%

Question 2

Which of the following statements most accurately distinguishes the GDP deflator from the Consumer Price Index (CPI)?

Accepted Answer

B) The CPI includes the prices of imported goods purchased by consumers, while the GDP deflator excludes them.

Answer

A) The GDP deflator uses a fixed basket of goods and services, whereas the CPI's basket changes annually based on production.

Answer

C) The GDP deflator measures the prices of consumer goods only, while the CPI measures consumer, investment, and government goods.

Answer

D) The CPI is published quarterly, whereas the GDP deflator is published monthly.

Question 3

If an economy's nominal GDP is $22 trillion and its real GDP is $20 trillion, what is the value of the GDP deflator?

Accepted Answer

A) 110

Answer

B) 90.9

Answer

C) 100

Answer

D) 1.1

Question 4

A country's GDP deflator in the current year is 125, using Year X as the base year. What is the correct interpretation of this value?

Accepted Answer

C) The overall price level has increased by 25% since the base year, Year X.

Answer

A) Real GDP is 25% higher than nominal GDP.

Answer

B) The inflation rate for the current year is 25%.

Answer

D) The economy's output of goods and services has grown by 25% since the base year.

Question 5

The calculation of the GDP deflator reflects the price changes of which of the following?

Accepted Answer

C) All domestically produced final goods and services, including those sold to firms and the government.

Answer

A) A fixed basket of consumer goods and services.

Answer

B) All final goods and services purchased by a typical urban household.

Answer

D) Imported consumer goods and domestically produced capital goods.

Question 6

For the base year, what is the value of the GDP deflator and why?

Accepted Answer

D) It is 100, because nominal GDP is equal to real GDP by definition.

Answer

A) It is 0, because there is no inflation in the base year.

Answer

B) It depends on the rate of economic growth in that year.

Answer

C) It is 1, because nominal and real GDP are fractions of each other.