The higher the GDP deflator in an economy, the:
(i) higher the purchasing power of the currency.
(ii) lower the real wealth in the economy.
(iii) higher the real wealth in an economy.
(iv) more expensive the country's exports.
A)(i) only
B)(i), (ii), (iii), and (iv)
C)(ii) and (iv)
D)(i), (iii), and (iv)

Question

Quizplus · Accepted Answer

The GDP deflator is a measure of the price level in an economy. A higher GDP deflator means that prices of goods and services have increased in the economy. 
(i) Higher prices mean lower purchasing power of the currency as it requires more currency to buy the same amount of goods and services.
(ii) As prices have increased, the real value of wealth has decreased. Therefore, the statement (ii) is correct.
(iii) The increase in prices does not necessarily lead to an increase in real wealth. Hence, the statement (iii) is incorrect.
(iv) A higher price level in the country means that its exports will be more expensive for foreign buyers. Therefore, the statement (iv) is correct. 
Thus, option C, (ii) and (iv) is the correct choice.

The Higher the GDP Deflator in an Economy, The