If the nominal GDP rises by 3 percent and the price level rises by 5 percent, then the real GDP ________ by ________.
A) rises; 8 percent
B) falls; 8 percent
C) rises; 2 percent
D) falls; 2 percent
E) None of these answers are correct.

Question

Quizplus · Accepted Answer

Real GDP is calculated by dividing nominal GDP by the price level, and multiplying by 100. Using the formula, if nominal GDP rises by 3% and the price level rises by 5%, the equation would be [(1+0.03)/(1+0.05)] x 100 = 97.14. Therefore, real GDP falls by 2%.

If the Nominal GDP Rises by 3 Percent and the Price