Answer the question on the basis of the following information: year nominal GDP price index 1 550 140 2 560 135 3 576 125 4 586 117 5 604 108 In the economy above:

1 a) the price level is rising faster than nominal GDP.
2 b) nominal and real GDP are growing at the same rate.
3 c) the growth of nominal GDP understates the growth of real GDP.
4 d) the growth of nominal GDP overstates the growth of real GDP.

ANSWER:

3 c) the growth of nominal GDP understates the growth of real GDP.