A price index can fall from one year to the next:
A)even when nominal GDP falls.
B)even when real GDP falls.
C)even when some individual good's prices rise.
D)in any of the above circumstances.

Question

A price index can fall from one year to the next:
A)​even when nominal GDP falls.
B)​even when real GDP falls.
C)​even when some individual good's prices rise.
D)​in any of the above circumstances.

Quizplus · Accepted Answer

A price index measures the overall level of prices in an economy. It can fall from one year to the next even if nominal GDP falls (A), because it may be due to a decrease in the prices of goods and services. It can also fall even if real GDP falls (B), because a decline in prices may offset a decline in output. Finally, it can fall even when some individual good's prices rise (C), as long as the prices of other goods fall by a greater amount, causing the overall price level to decline.

A Price Index Can Fall from One Year to the Next