If the nominal GDP rises by 6 percent and the real GDP rises by 3 percent, then the price level ________ by ________ percent.
A) rises; 3
B) rises; 9
C) falls; 3
D) falls; 9
E) There is no change in inflation.

Question

Quizplus · Accepted Answer

Nominal GDP measures the value of goods and services produced at current market prices, while real GDP measures the value of goods and services produced at constant prices. The difference between the two is inflation. Therefore, if nominal GDP rises by 6% and real GDP rises by 3%, inflation must have increased by the difference between the two, which is 3%. The price level has risen by 3%.

If the Nominal GDP Rises by 6 Percent and the Real