Question 21 The GDP deflator is designed to adjust nominal GDP for changes in (1) the costs of economic bads such as pollution and crime. (3) the quality of goods over time. (4) the level of transfer payments. (4) thal level of prices over time.

Did you know the GDP deflator was introduced in the United States in the 1950s? It's a nifty tool that economists use to differentiate between nominal GDP—a measure of all economic output at current prices—and real GDP, which reflects the value of that output adjusted for price changes. This adjustment allows us to see how well the economy is performing without the noise of inflation skewing our perspective. In the real world, the GDP deflator helps policymakers make informed decisions. For example, if inflation is rising faster than economic growth, it might indicate that prices are increasing due to demand and not necessarily due to a healthy economy. By keeping an eye on this metric, governments can adjust interest rates or implement fiscal policies to steer the economy in the right direction. So, it's not just a number; it’s a crucial part of economic strategy!