If real GDP increased by 2% and nominal GDP increased by 1%, then output:
A)increased and the price level increased.
B)increased and the price level decreased.
C)decreased and the price level increased.
D)decreased and the price level decreased.

Question

If real GDP increased by 2% and nominal GDP increased by 1%, then output:
A)​increased and the price level increased.
B)​increased and the price level decreased.
C)​decreased and the price level increased.
D)​decreased and the price level decreased.

Quizplus · Accepted Answer

Real GDP measures the growth of output, while nominal GDP measures the growth of output in money terms. If real GDP increased by 2% and nominal GDP increased by 1%, it means that prices have fallen by 1%. This implies that output has increased (as shown by the increase in real GDP) but at a lower price level (as shown by the lower increase in nominal GDP). Therefore, the correct answer is B.

If Real GDP Increased by 2% and Nominal GDP Increased