Suppose that the nominal value of GDP increased by approximately 2 percent during a given year, but real GDP decreased by 3 percent. Which of the following best explains these events?
A) The money supply decreased by approximately 5 percent.
B) Prices fell by approximately 5 percent.
C) Prices increased by approximately 5 percent.
D) The real productive capacity of the economy increased by approximately 5 percent.

Question

Quizplus · Accepted Answer

The nominal GDP increase of 2% combined with a real GDP decrease of 3% suggests that the price level (inflation) increased by approximately 5%, as nominal GDP is the product of real GDP and the price level.

Suppose That the Nominal Value of GDP Increased by Approximately