GDP Deflator and Inflation 2

Question 1

If nominal GDP rises 8% and the GDP deflator rises 5%, what is the approximate real GDP growth rate?

Accepted Answer

3%

Answer

Real GDP growth ≈ nominal GDP growth minus the GDP deflator growth rate, so 8% − 5% = 3%.

Question 2

The GDP deflator for the current year is 125 and the base year is 100. By how much have prices risen since the base year?

Accepted Answer

25%

Answer

A deflator of 125 relative to a base of 100 means prices have risen 25% since the base year.

Question 3

Which of the following is NOT included in the GDP deflator's price index?

Accepted Answer

Imported consumer goods

Answer

The GDP deflator covers only domestically produced goods and services; imports are excluded because they are not part of GDP.

Question 4

A country's nominal GDP is $2 trillion and the GDP deflator is 80. What is real GDP?

Accepted Answer

$2.5 trillion

Answer

Real GDP = (Nominal GDP / GDP Deflator) × 100 = ($2T / 80) × 100 = $2.5 trillion.

Question 5

If the GDP deflator falls from one year to the next, this indicates:

Accepted Answer

Deflation in the overall economy

Answer

A falling GDP deflator means the overall price level of domestically produced goods and services has declined, which is deflation.

GDP - Gross Domestic Product Practice Test