An increase in business income at a time when real GDP is constant will leave the GDP deflator unchanged.

Question

Quizplus · Accepted Answer

The GDP deflator reflects the level of prices of all new, domestically produced, final goods and services in an economy. If business income increases while real GDP is constant, it implies that nominal GDP has increased due to higher prices or profits, which would lead to an increase in the GDP deflator, indicating inflation.

An Increase in Business Income at a Time When Real