Refer to the above diagram.Which of the following statements is correct?
A)The price index is greater than 100 for every year shown on the graph.
B)Nominal GDP must be deflated in each year prior to 1992 to determine real GDP.
C)Real GDP has grown in this economy, but nominal GDP has not.
D)Nominal GDP must be deflated in each year since 1992 to determine real GDP.

Question

Refer to the above diagram.Which of the following statements is correct?
A)The price index is greater than 100 for every year shown on the graph. 
B)Nominal GDP must be deflated in each year prior to 1992 to determine real GDP. 
C)Real GDP has grown in this economy, but nominal GDP has not. 
D)Nominal GDP must be deflated in each year since 1992 to determine real GDP.

Quizplus · Accepted Answer

In order to determine the real GDP, nominal GDP must be deflated in each year since 1992. This is because the price index is above 100, indicating that there has been inflation in the economy. Therefore, nominal GDP does not accurately reflect the changes in the quantity of goods and services produced over time. Real GDP adjusts for inflation and gives a more accurate picture of economic growth.

Refer to the Above Diagram