What would be the cause of a 2% increase in nominal GDP?
A) a 1% increase in prices of and a 3% decrease in output
B) a 1% decrease in prices and a 1% increase in output
C) a 1% increase in prices and a 1% increase in output
D) a 3% increase in prices and a 1% increase in output

Question

Quizplus · Accepted Answer

Nominal GDP can be calculated by multiplying the price level by the quantity of output. Therefore, a 1% increase in prices and a 1% increase in output would result in a 2% increase in nominal GDP. Choice A and D both involve a larger change in prices than output, which would result in a larger change in nominal GDP than 2%. Choice B involves a decrease in prices, which would lead to a decrease in nominal GDP unless the increase in output is greater than 1%.

What Would Be the Cause of a 2% Increase in Nominal