Question

1) Which of the following statements is TRUE?

a) The wholesale price index can be used to measure price inflation in the market basket of goods and services purchased by households.

b) The GDP deflator measures the rate at which real GDP falls as the exchange rate rises.

c) The unemployment rate is a leading indicator of over-all economic activity.

d) Real variables remove the effect on inflation from the underlying change from a measure of economic activity measured in dollars.

e) (a) and (b)

f) (a) and (d

Answer 1

A measure of economic activity that is calculated in terms of dollars indicate nominal measure.

This includes the impact of inflation.

In order to remove impact of inflation, real variable is calculated as it removes the effect of inflation from nominal variable.

So, it can be stated that real variable removes the effect of inflation from the underlying change from a measure of economic activity measured in dollars.

Hence, the correct answer is the option (d).