Refer to the 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 2000 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 after 2000 to determine real GDP.

Question

Refer to the 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 2000 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 after 2000 to determine real GDP.

Quizplus · Accepted Answer

The graph shows that the price index is always greater than 100, meaning that prices have increased compared to the base year. Therefore, nominal GDP must be deflated in each year after 2000 to determine real GDP. This is because real GDP adjusts for changes in prices, while nominal GDP does not. The graph does not provide evidence to support either option B or option C.

Refer to the Diagram