If nominal GDP increases 4 percent during a year, and real GDP increases 7 percent during the same year, which of the following must by true?
A) The total value of GDP must have increased 11 percent during the year.
B) The general level of prices as measured by the GDP deflator decreased by approximately 3 percent during the year.
C) The general level of prices as measured by the GDP deflator increased by approximately 3 percent during the year.
D) Imports must have been about 3 percent larger than exports during the year.

Question

Quizplus · Accepted Answer

The GDP deflator is calculated as (Nominal GDP/Real GDP) x 100. If real GDP increases more than nominal GDP, it indicates a decrease in the price level, suggesting deflation.

If Nominal GDP Increases 4 Percent During a Year, and Real