If real GDP declines in a given year, nominal GDP:
A) Must also be declining
B) Must also be increasing
C) May either rise or fall
D) Is likely to remain constant

Question

Quizplus · Accepted Answer

Nominal GDP may either rise or fall, as it includes both the changes in real output and changes in prices. Real GDP adjusts for inflation, so a decline in real GDP indicates a decrease in the production of goods and services, while nominal GDP may still increase if prices rise. Therefore, the answer is C, as nominal GDP may either rise or fall in response to a decline in real GDP.

If Real GDP Declines in a Given Year, Nominal GDP