Question

3. If nominal GDP and real GDP both drop by 10 percent, then the GDP deflator Question 3 options: also rises by 10 percent rises by about 20 percent falls by 10 percent is unchanged

Answer 1

Answer: unchanged

Step-by-step explanation:

The formula for calculating the GDP price deflator is:

= (Nominal GDP / Real GDP) × 100

Let's assume that the nominal GDP and the real GDP is $100 million. Then if they drop by 10%, they will both be $90 million, then the deflator will be:

= (90m / 90m) × 100

= 100

Therefore, the GDP deflator will be unchanged.