Question

If real GDP rose from 344 to 350 while nominal GDP rose from 516 to 546 and the GDP deflator rose from 150 to 156, then the rate of inflation is 4.0 percent.

Select one:

True

False

Question text

Mary rented a house in 2012, paying $850 each month. She could have continued renting at $850 per month in 2013, but took the option of purchasing the house from the owner. She now makes a $1,000 per month mortgage payment. The housing service Mary receives will be included in 2013 GDP at the rate of $1,000 per month.

Select one:

True

False

If both final goods and intermediate goods were included in the calculation of GDP, then the measured GDP would overestimate the value of goods and services that were available for consumption by all sectors in the economy

Select one:

True

False

Answer 1

The inflation rate is the percentage increase in the price of goods and services in an economy from one year to another. It can be measured as the percentage change in GDP deflator.

It is given that the GDP deflator rose from 150 to 156 then the percentage change in GDP deflator can be calculated by the following formula:

So, there is a 4% increase in the GDP deflator. Therefore, the rate of inflation is 4% and the statement is true.