If you wanted to take 2000 nominal GDP and convert it to 1995 prices,you would take 2000 nominal GDP and
A)multiply it by (GDP deflator1995 4 GDP deflator2000).
B)multiply it by (GDP deflator2000 4 GDP deflator1995).
C)divide it by GDP deflator2000.
D)divide it by (GDP deflator2000 + GDP deflator1995).

Question

Quizplus · Accepted Answer

To convert nominal GDP from one year to another year's prices, we need to use the ratio of the GDP deflator of the two years. In this case, to convert 2000 nominal GDP to 1995 prices, we need to multiply it by the ratio of the GDP deflator for 1995 and 2000 (i.e., GDP deflator1995/GDP deflator2000). Therefore, the correct choice is A, which multiplies 2000 nominal GDP by (GDP deflator1995/GDP deflator2000).

If You Wanted to Take 2000 Nominal GDP and Convert