For the following question(s), suppose that an economy produces only bread and computers. Assume that all production is consumed in each year, and that price and quantity data are given in the table below.

-If a particular measure of real GDP consistently underestimates growth in real GDP, then the rate of inflation as measured by the GDP deflator
A) will consistently be overestimated.
B) will consistently be underestimated.
C) will be overestimated and underestimated equally often.
D) cannot be calculated.
E) is not a good predictor of the inflation rate in the CPI.

Question

For the following question(s), suppose that an economy produces only bread and computers. Assume that all production is consumed in each year, and that price and quantity data are given in the table below.
 
-If a particular measure of real GDP consistently underestimates growth in real GDP, then the rate of inflation as measured by the GDP deflator
A) will consistently be overestimated. 
B) will consistently be underestimated. 
C) will be overestimated and underestimated equally often. 
D) cannot be calculated. 
E) is not a good predictor of the inflation rate in the CPI.

Quizplus · Accepted Answer

If real GDP growth is underestimated, the nominal GDP appears larger relative to real GDP, leading to a higher GDP deflator, which overestimates inflation.

For the Following Question(s), Suppose That an Economy Produces Only