If we knew that nominal GDP was currently $5.4 trillion,and that GDP in dollars of 1997 purchasing power was $3.6 trillion,what would we know about the GDP price index?
A)It would be 0.667.
B)It would be 150.
C)We would know nothing until we had current information on the price level.
D)We would know only that a dollar buys more currently than it bought in 1997.
E)It indicates that substantial deflation has occurred since 1997.

Question

Quizplus · Accepted Answer

The GDP price index is calculated by dividing nominal GDP by real GDP and multiplying by 100. Therefore, GDP price index = (Nominal GDP / Real GDP) * 100. Using the given information, we can calculate Real GDP as $5.4 trillion / (Nominal GDP / Real GDP) = $3.6 trillion. Solving for Nominal GDP / Real GDP gives us 1.5. Multiplying by 100 gives us a GDP price index of 150.

If We Knew That Nominal GDP Was Currently $5