Question

If nominal GDP is $10 trillion and real GDP is $12 trillion, then the GDP deflator is

a. 83.33, and this indicates that the price level has decreased by 16.67 percent since the base year.
b. 83.33, and this indicates that the price level has increased by 83.33 percent since the base year.
c. 120, and this indicates that the price level has increased by 20 percent since the base year.
d. 120, and this indicates that the price level has increased by 120 percent since the base year.

Answer 1

A. 83.33, and this indicates that the price level has decreased by 16.67 percent since the base year.

Step-by-step explanation:

We know, GDP deflator is the ratio between nominal and real GDP. More elaborately, GDP deflator is the measure of either the new or existing, domestically produced, final goods, and services price level of the economy.

GDP deflator = (Nominal GDP/ Real GDP) x 100

GDP deflator = $(10/12) x 100 = 83.33

Therefore, it indicates that the price is decreased from the previous period. Generally, the base deflator is 100. So, there is a decrease of (100 - 83.33)% = 16.67% since the base year. Therefore, A is the right option.