If real GDP in 2013 (using 2009 prices)is lower than nominal GDP of 2012,then
A)prices in 2013 are lower than prices in 2012.
B)nominal GDP in 2013 equals nominal GDP in 2012.
C)prices in 2013 are higher than prices in 2012.
D)real GDP in 2013 is larger than real GDP in 2012.

Question

Quizplus · Accepted Answer

If real GDP in 2013 (using 2009 prices) is lower than the nominal GDP of 2012, it means that the economy produced fewer goods and services in 2013, but at the same time, prices in the economy were lower than in 2012. This is because real GDP adjusts for inflation using a base year's prices (in this case, 2009), while nominal GDP is not adjusted for inflation. Therefore, the decrease in real GDP indicates a decrease in the quantity of goods and services produced, while the increase in nominal GDP indicates an increase in value of those goods and services at current prices, which, in turn, implies an increase in prices. Thus, prices in 2013 are lower than prices in 2012 (option A is correct).

If Real GDP in 2013 (Using 2009 Prices)is Lower Than