The GDP deflator in year 3 is 85 using year 1 as a base year. This means that, on average, the price of goods and services is
A) 15% higher in year 3 than in year 1.
B) 7.5% higher in year 3 than in year 1.
C) 15% higher in year 1 than in year 3.
D) 7.5% higher in year 1 than in year 3.

Question

Quizplus · Accepted Answer

The GDP deflator being 85 means that the price level in year 3 is 85% of the price level in year 1, indicating that prices are 15% lower in year 3 compared to year 1, not higher.

The GDP Deflator in Year 3 Is 85 Using Year