An increase in the rate of growth of nominal GNP
A)will cause a greater increase in real GNP the lower the rate of inflation.
B)will cause a smaller increase in real GNP the lower the rate of inflation.
C)will shift the SP curve upward.
D)will shift the SP curve downward.

Question

Quizplus · Accepted Answer

A higher rate of inflation reduces the purchasing power of money, so if the nominal GNP increases at a faster rate, the real GNP (adjusted for inflation) will also increase more if the inflation rate is lower. This is because the growth in output is not fully offset by inflation. Moreover, an increase in nominal GNP would shift the SP curve upward, indicating higher levels of planned spending at every level of output.

An Increase in the Rate of Growth of Nominal GNP