If Real GDP Is 5,100 and Nominal GDP Is 4,900,then

question 5

Multiple Choice

If real GDP is 5,100 and nominal GDP is 4,900,then the GDP deflator is

• A)104.1 so prices are higher than in the base year.
• B)104.1 so prices are lower than in the base year.
• C)96.1 so prices are higher than in the base year.
• D)96.1 so prices are lower than in the base year.

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Definitions:

Interest Rate

The percentage of a sum of money charged for its use, typically expressed as an annual rate, influencing savings and borrowing costs.

Saving

Current income that is not spent on consumption goods. Saving makes it possible for resources to be devoted to investments (like the making of tractors or other equipment used in production).

Investment

The purchase, construction, or development of resources, including physical assets, such as plants and machinery, and human assets, such as better education. Investment expands an economy’s resources. The process of investment is sometimes called capital formation.

Barter Economy

An economic system where goods and services are exchanged directly for other goods and services without the use of money.