If the base year for the GDP deflator is 2000 and the value of the GDP deflator in 2003 was 107,this indicates that the general level of prices
A)declined between 2000 and 2003.
B)was approximately 7 percent lower in 2003 than in 2000.
C)was approximately 7 percent higher in 2003 than in 2000.
D)was approximately 107 percent higher in 2003 than in 2000.

Question

Quizplus · Accepted Answer

The GDP deflator is a measure of the general price level in an economy, and reflects the changes in prices of all final goods and services produced within a country. A base year is chosen to be the reference point, and its value is set equal to 100. The value of the GDP deflator in a subsequent year then indicates the percentage change in prices relative to the base year.

In this case, the base year is 2000, and the value of the GDP deflator in 2003 is 107. This means that, on average, the prices of all final goods and services produced within the economy increased by approximately 7 percent between 2000 and 2003. Therefore, the correct answer is C, which states that the general level of prices was approximately 7 percent higher in 2003 than in 2000.

If the Base Year for the GDP Deflator Is 2000