Whenever there is inflation,increase in nominal gross domestic product (GDP)overstates the growth rate of the economy.

Question

Quizplus · Accepted Answer

Inflation causes the general price level to increase, so nominal GDP, which measures the value of goods and services produced at current prices, will also increase. However, this increase in nominal GDP may not reflect an actual increase in the quantity of goods and services produced, especially if the increase in prices was due to factors like supply constraints or currency depreciation. Therefore, the growth rate of the economy may be overestimated if only nominal GDP is used as a measure, as opposed to real GDP, which estimates the value of goods and services produced while accounting for changes in the price level.

Whenever There Is Inflation,increase in Nominal Gross Domestic Product (GDP)overstates