If the prices of all goods and services rise during the year,
A)real GDP may fall.
B)nominal GDP must rise.
C)nominal GDP may increase.
D)real GDP must rise.

Question

Quizplus · Accepted Answer

If the prices of all goods and services rise during the year, it means there is inflation. Inflation means that the value of money has decreased, causing people to pay more for the same goods and services. Nominal GDP measures the total value of goods and services produced in an economy using current market prices, which means that it includes the effects of inflation. Therefore, nominal GDP may increase in this scenario. Real GDP, on the other hand, measures the total value of goods and services produced in an economy adjusted for inflation or deflation, so it may either increase or decrease depending on the extent of the inflation.

If the Prices of All Goods and Services Rise During