Suppose in current dollar terms, GDP increased by approximately 7 percent between one period and the next, but real GDP fell by 2 percent. Which one of the following explanations is most likely?

Question

Quizplus · Accepted Answer

The increase in nominal GDP by 7% combined with a decrease in real GDP by 2% suggests that the price level increased significantly, likely by around 9%, which would account for the entire nominal increase being due to inflation rather than an increase in output.

Suppose in Current Dollar Terms, GDP Increased by Approximately 7