If deflation is occurring and nominal Gross Domestic Product (GDP) is increasing over time, then real Gross Domestic Product (GDP) is
A) decreasing.
B) increasing at the same rate as nominal Gross Domestic Product (GDP).
C) increasing more slowly than nominal Gross Domestic Product (GDP).
D) increasing faster than nominal Gross Domestic Product (GDP).

Question

Quizplus · Accepted Answer

Real GDP adjusts nominal GDP for changes in price level. If deflation is occurring (prices are falling) and nominal GDP is increasing, it means the volume of goods and services produced (real GDP) is increasing even more rapidly than the nominal GDP, because the falling prices would otherwise lower the nominal GDP.

If Deflation Is Occurring and Nominal Gross Domestic Product (GDP)