If prices in the current year are higher on average than in the base year,then real GDP in the current year _________ nominal GDP in the current year.
A) is greater than
B) is less than
C) is equal to
D) could be greater or less than
E) is one-third of

Question

Quizplus · Accepted Answer

Real GDP is calculated by adjusting nominal GDP for changes in prices using a price index, such as the consumer price index or the GDP deflator. If prices are higher in the current year than in the base year, then the price index will be greater than 100, causing real GDP to be lower than nominal GDP. Therefore, real GDP in the current year is less than nominal GDP in the current year.

If Prices in the Current Year Are Higher on Average