### Understanding the GDP Deflator**Problem Statement:**If the nominal GDP is $5 trillion and the real GDP is $4 trillion, what is the GDP deflator?**Options:**- 12.5- 125- 80- 800**Solution Explanation:**The GDP deflator is a measure of price inflation/deflation with respect to a specific base year. It reflects the level of prices for all new, domestically produced, final goods and services in an economy. **Formula for GDP Deflator:**\[ \text{GDP Deflator} = \left( \frac{\text{Nominal GDP}}{\text{Real GDP}} \right) \times 100 \]**Calculation:**1. **Nominal GDP** = $5 trillion2. **Real GDP** = $4 trillion\[ \text{GDP Deflator} = \left( \frac{5}{4} \right) \times 100 = 125 \]Thus, the correct answer is **125**. This value means that prices have increased by 25% from the base year.

GDP Deflator measure of the level of prices of all new, domestically produced, final goods and…

Answered: If nominal GDP is $5 trillion and real…

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If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is: 12.5. 125.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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