Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
An increase in the GDP deflator indicates that real GDP is rising.
B
Real GDP can be calculated by dividing nominal GDP by the GDP deflator and multiplying by 100.
C
A budget surplus occurs when government expenditures exceed revenues, leading to an increase in national debt.
D
If real GDP is lower than nominal GDP, it suggests that inflation is occurring.
E
A decrease in the GDP deflator suggests a contraction in the economy.
Understanding the Answer
Let's break down why this is correct
Answer
Nominal GDP is the total value of all goods and services produced in a country at current prices, without adjusting for inflation. Real GDP, on the other hand, measures the same value but adjusts for changes in price levels over time, allowing us to see how much the economy has actually grown. The GDP deflator is a tool used to convert nominal GDP into real GDP; it reflects the overall level of prices in the economy. For example, if nominal GDP is $1 trillion and the GDP deflator is 1. 2, the real GDP would be calculated by dividing the nominal GDP by the deflator, resulting in approximately $833 billion.
Detailed Explanation
Other options are incorrect because This statement confuses the GDP deflator with real GDP; This option mixes up how to calculate real GDP.
Key Concepts
Real GDP calculation
GDP deflator
Budget deficits and surpluses
Topic
Calculating Real GDP and Deficits
Difficulty
medium level question
Cognitive Level
understand
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