In a given year, nominal GDP increases by approximately 7 percent, but real GDP falls by 2 percent.Which one of the following explanations is most likely?

Question

Quizplus · Accepted Answer

Nominal GDP accounts for current market prices, while real GDP is adjusted for inflation and reflects the actual volume of production. If nominal GDP increases by 7% but real GDP falls by 2%, it implies that the increase in nominal GDP is due to price increases rather than an increase in output. The difference between the 7% increase in nominal GDP and the 2% decrease in real GDP suggests that prices increased by approximately 9%, making option D the most likely explanation.

In a Given Year, Nominal GDP Increases by Approximately 7