The GDP deflator in year 2 is 105,using year 1 as the base year.This means that,on average,the cost of goods and services is
A)5% higher in year 2 than in year 1.
B)105% higher in year 2 than in year 1.
C)5% higher in year 1 than in year 2.
D)105% higher in year 1 than in year 2.

Question

Quizplus · Accepted Answer

The GDP deflator is a measure of the overall price level of goods and services in an economy. An index value of 105 means that the prices have increased by 5% from the base year (year 1). Therefore, choice A is correct. B, C, and D are incorrect as they give incorrect interpretations of the deflator value.

The GDP Deflator in Year 2 Is 105,using Year 1