What happens to the GDP deflator if both nominal GDP and real GDP rise by 10%?

The GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. It is calculated as the ratio of nominal GDP to real GDP, multiplied by 100.

When both nominal GDP and real GDP rise by the same percentage, in this case, 10%, the ratio of nominal GDP to real GDP remains constant. This is because a 10% increase in both values means that their relative relationship does not change. Since the GDP deflator is derived from this ratio, it will not change if both nominal and real GDP increase identically. Therefore, the GDP deflator remains unchanged, confirming that the correct answer reflects the stability in price levels relative to output in the economy during this scenario.