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 be overestimated and underestimated equally often.
B)is not a good predictor of the inflation rate in the CPI.
C)will consistently be underestimated.
D)cannot be calculated.
E)will consistently be overestimated.

Question

Quizplus · Accepted Answer

If real GDP is consistently underestimated, it means that the nominal GDP is higher than what is being reported. In turn, this will lead to an overestimation of the GDP deflator, which is calculated as nominal GDP divided by real GDP. An overestimation of the GDP deflator means that the rate of inflation as measured by the GDP deflator will consistently be overestimated.

If a Particular Measure of Real GDP Consistently Underestimates Growth