Question

• A. 0.9
• B. 1.1
• C. 1
• D. 0.8

Answer 1

The Correct Option is B

The GDP deflator is calculated as Nominal GDP/Real GDP = \(\frac{1100}{1000} = 1.1\).

Answer 2

The GDP deflator is a measure of the overall level of prices in an economy and is used to adjust Nominal GDP for changes in the price level, providing a more accurate picture of real economic growth. It is calculated as the ratio of Nominal GDP to Real GDP:

\[ GDP \, \text{Deflator} = \frac{\text{Nominal GDP}}{\text{Real GDP}} = \frac{1100}{1000} = 1.1 \]

In this example, the Nominal GDP is 1100 and the Real GDP is 1000. The GDP deflator is calculated to be 1.1, which means that the price level in the economy has increased by 10% compared to the base year used to calculate Real GDP. A GDP deflator greater than 1 indicates inflation, while a deflator less than 1 would indicate deflation.