If nominal GDP rises,
A) real GDP may either rise or fall.
B) we can be certain that the price level has risen.
C) real GDP must fall.
D) real GDP must also rise.

Question

Quizplus · Accepted Answer

Nominal GDP is calculated using current prices and therefore can be affected by changes in prices. Real GDP, on the other hand, is adjusted for inflation and gives a more accurate picture of the actual production of goods and services in an economy. So, if nominal GDP rises, it could be due to an increase in prices (inflation) or an increase in quantity of goods and services produced, in which case real GDP would also rise. Alternatively, it could be due to both an increase in prices and a decrease in quantity produced, in which case real GDP would fall. Therefore, we cannot be certain about the direction of real GDP from a change in nominal GDP alone.

If Nominal GDP Rises