Suppose that in 2011 nominal GDP increased and real GDP decreased relative to the year 2010. It can be concluded that:
A)the economy experienced inflation and the total production of goods and services increased.
B)the economy experienced deflation and the total production of goods and services increased.
C)the economy experienced inflation and the total production of goods and services decreased.
D)the economy experienced deflation and the total production of goods and services decreased.

Question

Suppose that in 2011 nominal GDP increased and real GDP decreased relative to the year 2010. It can be concluded that:
A)​the economy experienced inflation and the total production of goods and services increased.
B)​the economy experienced deflation and the total production of goods and services increased.
C)​the economy experienced inflation and the total production of goods and services decreased.
D)​the economy experienced deflation and the total production of goods and services decreased.

Quizplus · Accepted Answer

If nominal GDP (which includes inflation) increased while real GDP (which is adjusted for inflation) decreased, it means that prices of goods and services increased while the actual production decreased. This is consistent with inflationary pressures in the economy and decreased economic activity. Therefore, option C is the correct answer.

Suppose That in 2011 Nominal GDP Increased and Real GDP