The table below shows the nominal GDP and the real GDP for the country of Hamsterville over three years
\begin{tabular}{lll}
Period & Nominal GDP & Real GDP \
\hline Year 1 & $\$ 120$ billion & $\$ 130$ billion \
Year 2 & $\$ 150$ billion & $\$ 150$ billion \
Year 3 & $\$ 160$ billion & $\$ 140$ billion
\end{tabular}

Which of the following can be concluded from the data above?
Choose 1 answer:
(A) Year 1 is the base year for the GDP deflator price index
(B) The economy's output of goods and services increased every year between years 1 and 3
(c) The composition of the country's output changed between years 2 and 3 , shifting from capital goods to consumer goods
(D) The economy experienced inflation between years 2 and 3

Question

The table below shows the nominal GDP and the real GDP for the country of Hamsterville over three years
\begin{tabular}{lll} 
Period & Nominal GDP & Real GDP \
\hline Year 1 & $\$ 120$ billion & $\$ 130$ billion \
Year 2 & $\$ 150$ billion & $\$ 150$ billion \
Year 3 & $\$ 160$ billion & $\$ 140$ billion
\end{tabular}

Which of the following can be concluded from the data above?
Choose 1 answer:
(A) Year 1 is the base year for the GDP deflator price index
(B) The economy's output of goods and services increased every year between years 1 and 3
(c) The composition of the country's output changed between years 2 and 3 , shifting from capital goods to consumer goods
(D) The economy experienced inflation between years 2 and 3

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ To analyze the data, we compare nominal GDP and real GDP for each year. ‖ ‖ step 2 ⋮ Nominal GDP is the market value of goods and services produced in a year using current prices, while real GDP is adjusted for inflation and reflects the value using constant prices. ‖ ‖ step 3 ⋮ By comparing the nominal and real GDP, we can infer about inflation or deflation. If nominal GDP is higher than real GDP, it indicates inflation. If nominal GDP is lower than real GDP, it indicates deflation. ‖ ‖ step 4 ⋮ For Year 1, Nominal GDP is $120 billion and Real GDP is $130 billion, suggesting deflation if Year 1 is the base year. ‖ ‖ step 5 ⋮ For Year 2, Nominal GDP equals Real GDP at $150 billion, indicating no inflation or deflation if Year 2 is the base year. ‖ ‖ step 6 ⋮ For Year 3, Nominal GDP is $160 billion and Real GDP is $140 billion, indicating inflation if Year 3 is the base year. ‖ ‖ step 7 ⋮ Since we see inflation from Year 2 to Year 3 (nominal GDP increased more than real GDP), we can conclude that the economy experienced inflation between these years. ‖ ∻Answer∻ ***D*** ∻Key Concept∻ ⚹Inflation and Real vs Nominal GDP⚹ ∻Explanation∻ ⚹Inflation is indicated when nominal GDP grows faster than real GDP, as seen from Year 2 to Year 3 in the data provided.⚹◊What is the formula for calculating the GDP deflator price index using nominal GDP and real GDP?⍭ Generate me a similar question◊$

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