question 25

If the GDP deflator rose by 10% last year and nominal GDP grew by 7%, then real GDP must have: a. fallen by 3%. b. risen by 17%. c. fallen by 17%. d. risen by 3%. 5. A changing-basket price index (Passche index) like the GDP deflator tends to: a. underestimate the change in the cost of living because it does not take into account that people can substitute less-expensive goods for ones that become more expensive. b. overestimate the change in the cost of living because the continual introduction of new goods makes consumers better off even if prices do not fall. c. underestimate the change in the cost of living because it does not reflect the reduction in consumers' welfare that may result from the substitutions of less expensive goods for more expensive ones. d. overestimate the change in the cost of living because it takes into account that people can substitute less expensive goods for more expensive ones. 26. Which of the following economic reasoning behind the twin deficit theory is not correct