1109 78 Question 2 GDP deflator If nominal GDP grew by 5 a

11:09 @ * 78% Question 2 GDP deflator If nominal GDP grew by 5% and real GDP grew by 3% then the GDP deflator grew by Multiple Choice A2% B3% 5% D 8% Unanswered

Solution

Solution:

GDP deflator: (A)

Explanation: Rise in GDP deflator = Rate of grew of Nominal - Rate of grew of Real = 5% - 3% = 2%

Factor supplies and prices: (D)

Explanation; Since capital stock has decreased and labor stock remains same, so rental price of capital will increase and labor price will have no changes.

Business expectation: (C)

Explation: Since there is higher profitability in future will induce the business to increase investment to get more profit. But it will have no effect on real interest rate.

Changing real interest rate: (C)

Explanation: Decrease in desired investment as it has negative investment

Consumer expectation: (B)

explanation: They believe that in future their income will increase hence will be consuming more in current period. Increase in consumption will lead to less of saving. Saving has direct relationship with interest rate. hence real interest rate will decrease.