If nominal GDP decreases from one year to the next, _____ must have fallen.
A)prices
B)real GDP
C)prices and real GDP
D)output or prices or both

Question

Quizplus · Accepted Answer

Nominal GDP is calculated using current prices, so a decrease in nominal GDP suggests that either output or prices or both have fallen. Real GDP, on the other hand, is adjusted for inflation, so it is possible for real GDP to increase even if nominal GDP decreases, if prices fall by a greater percentage than output. Therefore, the only logical choice is D - output or prices or both.

If Nominal GDP Decreases from One Year to the Next