The GDP deflator for the base year is
A) less than 100.
B) always equal to 100.
C) greater than 100.
D) dependent on the quantities of output and the prices at which outputs are sold in the base year.

Question

Quizplus · Accepted Answer

The GDP deflator for the base year is always equal to 100, by definition. This is because it is calculated as nominal GDP divided by real GDP, and in the base year, nominal and real GDP are by definition equal (since the prices and quantities of goods and services in the base year are used as the basis for comparison). Therefore, the ratio of nominal to real GDP is always 1, or 100 as a percentage.

The GDP Deflator for the Base Year Is