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Price Index Overstated and the Effect on Inflation

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7. Real GDP is computed by dividing nominal GDP by a price index. If the price index overstates the current price level since the base year, we can expect:

A. the measurement of real GDP to be understated relative to the base year, and the inflation rate reported to be too high.
B. the measurement of real GDP to be overstated relative to the base year, and the inflation rate reported to be too high;
C. the measurement of real GDP to be understated relative to the base year, and the inflation rate reported to be too low;
D. the measurement of real GDP to be overstated relative to the base year, and the inflation rate reported to be too low.

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7. Real GDP is computed by dividing nominal GDP by a price index. If the price index overstates the ...

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