Assume an economy that makes only one product and that year 3 is the base year. Output and price data for a five-year period are as follows. Answer the question on the basis of these data. year units of output price per unit 1 3 3 2 4 4 3 6 5 4 7 7 5 8 8

Refer to the above data. In determining real GDP, the nominal GDP for:
a) each year must be multiplied by the relevant price index.
b) years 1 and 2 must be deflated.
c) years 4 and 5 must be inflated.
d) years 1 and 2 must be inflated.

ANSWER:

d) years 1 and 2 must be inflated.