Question

Answer the following questions either true, false, explain your answer. The explanation is the most important...

Answer the following questions either true, false, explain your answer. The explanation is the most important part of your answer.

If nominal GDP increased by 5.1% and real GDP increased by 2.5% last year, Prices went up during the year.

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Homework Answers

Answer #1

GDP Deflator = (Nominal GDP / Real GDP ) * 100

It is given that Increase in Nominal GDP > Increase in Real GDP, so based on above formula, it implies that GDP Deflator increases.

An increase in nominal GDP indicates that the general prices of goods have increased as it is not adjusted for inflation.

On the other hand, Real GDP is adjusted for inflation and any increase in the value implies rise in the output level.

GDP Deflator is taken as a proxy for price index. Any increase in the deflator value would imply a rise in the prices.

Hence, we can say that the prices have risen during the year.

So, Statement is TRUE

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