If nominal GDP increased from $8,000 billion in the base year to $8,400 billion in the following year and real GDP stayed the same, which is true?

Question

Quizplus · Accepted Answer

The GDP deflator is a measure of the overall price level of goods and services produced in an economy. It is calculated by dividing nominal GDP by real GDP and multiplying by 100. In this case, nominal GDP increased from $8,000 billion to $8,400 billion, while real GDP stayed the same. This means that the GDP deflator must have increased in order to account for the difference between nominal and real GDP. The correct answer is therefore D) prices increased on average by 5 percent.

If Nominal GDP Increased from $8,000 Billion in the Base