Assume an economy is producing only one product. Year 2 is the base year. Output and price data for a five-year period are given.YearUnits of OutputPrice Per Unit14$425537849951010Refer to the above data. If year 2 is chosen as the base year, then in determining real GDP, nominal GDP for:

A. year 1 must be inflated.
B. years 1 and 2 must be deflated.
C. years 3, 4, and 5 must be inflated.
D. year 2 must be deflated.

ANSWER

A. year 1 must be inflated.