ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The only thing that can increase nominal GDP is an increase in inflation
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The only thing that can increase nominal GDP is an increase in output
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The only thing that can increase real GDP is an increase in inflation
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The only thing that can increase real GDP is an increase in nominal GDP
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The only thing that can increase real GDP is an increase in output
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Detailed explanation-1: -The correct answer is (i). Nominal GDP is the aggregate value of all final goods and services at current prices, whereas real GDP is the aggregate value of all final goods and services at constant prices.
Detailed explanation-2: -The correct answer is (iv) Nominal GDP values production at current prices, whereas real GDP values production at constant prices.
Detailed explanation-3: -An increase in nominal GDP may just mean prices have increased, while an increase in real GDP definitely means output increased. The GDP deflator is a price index, which means it tracks the average prices of goods and services produced across all sectors of a nation’s economy over time.
Detailed explanation-4: -The fact that nominal GDP has grown faster than real GDP indicates that prices have risen over time. An economy that had real GDP growing faster than nominal GDP would have a falling price level. Changes in inventory capture the value of goods produced this year but not sold until next year.