The GDP deflator in year 2 is 95 using year 1 as a base year. This means that, on average, the price of goods and services is
A) 105% higher in year 2 than in year 1.
B) 5% 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 level of prices of all new, domestically produced, final goods and services in an economy. A GDP deflator of 95 indicates that the price level has decreased by 5% from the base year (year 1) to year 2, meaning prices are 5% higher in year 1 than in year 2.

The GDP Deflator in Year 2 Is 95 Using Year