Question

Year, nominal GDP, GDP deflator

1975, $3000, 120
1976, $3750, 150
From 1975 to 1976,
a. inflation was 25% and real GDP grew.
b. inflation was 50% and real GDP did not grow.
c. inflation was 25% and real GDP did not grow.
d. inflation was 50% and real GDP grew.

Answer 1

The correct answer is option c. inflation was 25% and real GDP did not grow.

Step-by-step explanation:

The question pertains to the concepts of inflation and real GDP. Inflation refers to the increase in prices over time, while real GDP measures the value of goods and services produced in an economy adjusted for price changes. To determine the effect of inflation on real GDP, we can use the GDP deflator. From the given information, we can calculate that the inflation rate from 1975 to 1976 was 25% and the GDP deflator increased from 120 to 150. Since the GDP deflator increased, it indicates that prices have risen. Therefore, the correct answer is option c. inflation was 25% and real GDP did not grow.