2017 2018

Nominal GDP $10,000 $12,000

Real GDP 9,500 10,500

Given the information above, what can we say has happened in the economy from 2017 to 2018?

A. The price level has remained constant.

B. Not enough information is available to determine what has happened to prices.

C. The price level has risen.

D. The price level has fallen.

C. The price level has risen.

Explanation:

GDP deflator = (Nominal GDP : Real GDP) * 100

GDP deflator of 2017 = (10,000 : 9,500) * 100

= 105.263158

GDP deflator of 2018

= (12,000 : 10,500) * 100

=114.285714

Inflation = (Consumer price index of 2018 - Consumer price index of 2017) : CPI of 2017) * 100

= ((114.285714 - 105.263158) : 105.263158) * 100

=8.57142819

=8.57%

From 2017 to 2018 the price level increased by 8.57%