Question

Suppose that the GDP deflator grew by 10 percent from last year to this year. That is, the inflation rate this year was 10 percent. This means that overall: real GDP in the economy has risen by 10 percent. real GDP and prices both rose by 10 percent. prices in the economy have risen by 10 percent. output in the economy rose by 10 percent. This inflation rate implies that the growth rate in real GDP was 10 percent: more than the growth rate in nominal GDP. more than the growth rate in inflation. less than the growth rate in inflation. less than the growth rate in nominal GDP.

Answer 1

Answer: 1. Prices in the economy have risen by 10 percent.

2. Less than the growth rate in nominal GDP.

Step-by-step explanation:

There are 2 questions here.

1. Suppose that the GDP deflator grew by 10 percent from last year to this year. That is, the inflation rate this year was 10 percent. This means that overall:

Prices in the economy have risen by 10 percent.

GDP deflator is a price index and is calculated like inflation. As you may or may not know, inflation is considered to be the rate at which prices in the economy are rising. If the Inflation rate this year is 10%, that means that prices have risen by 10%.

2. This inflation rate implies that the growth rate in real GDP was 10 percent:

Less than the growth rate in nominal GDP.

Real GDP is calculated by adjusting for inflation to enable for easier comparison whilst Nominal GDP already includes said inflation. For this reason the 10% increase in the inflation rate means that the Real GDP which has been adjusted for inflation is 10% less than the Nominal GDP.