ECONOMICS
ECONOMIC GROWTH
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
The output of the country increases
|
|
|
The general level of prices in the country decreases
|
|
|
The general level of prices in the country increases
|
|
|
None of the above
|
Detailed explanation-1: -Nominal GDP versus real GDP Nominal GDP may change over time due to two sources: (a) change in the quantity produced of goods and services, and (b) change in the market price of these goods and services, that is, “inflation".
Detailed explanation-2: -The price level falls and the quantity of final goods and services produced rises. In this case, real GDP rises, nominal GDP falls, if the percentage change in price is more than percentage change in the output. The price level falls and the quantity of final goods and services produced falls.
Detailed explanation-3: -So, it is possible for an economy to experience an increase of real GDP (if the quantity of final goods and services increase) but experience a decrease of nominal GDP (if the decrease in prices offsets the increase in quantity of goods and services).
Detailed explanation-4: -Nominal GDP growth is driven both by changes in real economic activity and by changes in prices. The difference between nominal and real GDP growth shown below is accounted for by inflation.