A country reported nominal GDP of $115 billion in 2010 and $125 billion in 2009. It also reported a GDP deflator of 85 in 2010 and 100 in 2009. Between 2009 and 2010, a. real output and the price level both rose. b. real output rose and the price level fell. c. real output fell and the price level rose. d. real output and the price level both fell.

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16 September, 22:05

A country reported nominal GDP of $115 billion in 2010 and $125 billion in 2009. It also reported a GDP deflator of 85 in 2010 and 100 in 2009. Between 2009 and 2010, a. real output and the price level both rose. b. real output rose and the price level fell. c. real output fell and the price level rose. d. real output and the price level both fell.

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Alyvia Horne · Answer 1

In this case, the correct answer is option b. or real output rose and price level fell.

Explanation:

GDP Deflator in Macroeconomics, shows the inflation or deflation rate in a country within the specific time period. Hence, it measures the changes in the average price level of goods and services in any country or economy over a particular period of time. It is mathematically calculated by dividing the nominal GDP of the country or economy by its real GDP. Now, a decrease in the nominal GDP relative to the real GDP or GDP deflator implies an deflationary impact or an increase in the average price level of goods and services in the economy and vise versa. Note that in this case both the nominal GDP and GDP deflator decreased from 2009 to 2010 which advocates that the price level in the economy fell (deflation) and the real output or GDP rose or increased due to deflationary impacts as reflected by the decline in GDP deflator.