Given the information below, during which quarters does real income decline?
Nominal GDP GDP Deflator -
Q 0 (base) 981100 -
Q 1 993101 -
Q 2 1,001106 -
Q 3 1,042111 -
Q 4 1,040107 -
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A. B. C. D. E. F.C
Real income is measure by real GDP. The first step in this problem is to calculate real GDP in each period by multiplying nominal GDP by the base GDP deflator and then dividing by the current GDP deflator. The result is as follows:
Q1 983 -
Q2 944 -
Q3 939 -
Q4 972 -
Therefore real income declines in the second and third quarters.