Assume that the prices of cars manufactured in the U.S.increases due to an increase in quality.Which of the following should happen if the same number of cars is produced?

Question

Quizplus · Accepted Answer

An increase in the quality of cars would likely result in an increase in the price of cars, which would increase nominal GDP since GDP is calculated using current prices. Real GDP would not be affected if the increase in price was solely due to an increase in quality, as there has been no actual increase in production. The GDP-deflator would increase due to the increase in car prices, not decrease. Therefore, option B is the correct answer.

Assume That the Prices of Cars Manufactured in the U