A country reported nominal GDP of $100 billion in 2006 and $75 billion in 2005;it reported a GDP deflator of 125 in 2006 and 120 in 2005.Between 2005 and 2006,

Question

Quizplus · Accepted Answer

The GDP deflator measures the overall price level of the economy. As the GDP deflator increased from 120 in 2005 to 125 in 2006, it indicates that there was inflation. However, the nominal GDP increased from $75 billion in 2005 to $100 billion in 2006, which means the economy produced more goods and services. Therefore, real output (measured by GDP adjusted for inflation) and the price level both rose between 2005 and 2006, leading to answer choice A.

A Country Reported Nominal GDP of $100 Billion in 2006