If nominal GDP grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately ______ percent.
A) 2
B) 3
C) 5
D) 8

Question

Quizplus · Accepted Answer

The GDP deflator measures the ratio of nominal GDP to real GDP, multiplied by 100. To find the growth rate of the GDP deflator, we can subtract the initial ratio from the final ratio and divide by the initial ratio, multiplied by 100. Using the formula, we get:

[(nominal GDP final/real GDP final) - (nominal GDP initial/real GDP initial)] / (nominal GDP initial/real GDP initial) x 100

Plugging in the values given, we get:

[(105/103) - (100/97)] / (100/97) x 100 = 1.94

Rounded to the nearest whole number, this is approximately 2 percent, which is answer choice A.

If Nominal GDP Grew by 5 Percent and Real GDP