Suppose that nominal GDP in an economy in year 1 is $500 million and in year 2 is $600 million. If the price level of the goods and services produced has increased from an index number of 120 to an index number of 130 then, Group of answer choiceswhile nominal GDP increased between year 1 and year 2, real GDP must have decreased.while nominal GDP has decreased between year 1 and year 2, real GDP must have increased.while prices of the goods and services have increased by 10% between year 1 and year 2, real GDP has decreased by only 5%.while there has been inflation over this period, real GDP has still increased.
Question
Suppose that nominal GDP in an economy in year 1 is 600 million. If the price level of the goods and services produced has increased from an index number of 120 to an index number of 130 then, Group of answer choiceswhile nominal GDP increased between year 1 and year 2, real GDP must have decreased.while nominal GDP has decreased between year 1 and year 2, real GDP must have increased.while prices of the goods and services have increased by 10% between year 1 and year 2, real GDP has decreased by only 5%.while there has been inflation over this period, real GDP has still increased.
Solution
To answer this question, we first need to understand the difference between nominal GDP and real GDP. Nominal GDP is the market value of all final goods and services produced in a country in a given period, measured in current prices. Real GDP, on the other hand, is nominal GDP adjusted for inflation, meaning it reflects the value of all goods and services produced by an economy in a given year, expressed in base-year prices.
In this case, nominal GDP has increased from 600 million, which is a 20% increase. However, the price level has also increased from an index number of 120 to 130, which is an approximately 8.33% increase in prices (130-120)/120*100.
To find the real GDP for each year, we need to adjust the nominal GDP by the price level. But since we don't have the base year price level, we can't calculate the exact real GDP. However, we can say that if the increase in nominal GDP was solely due to price increases, then real GDP would remain the same. But since nominal GDP increased by a larger percentage (20%) than the price level (8.33%), it suggests that real GDP has also increased.
So, the correct answer is: "While there has been inflation over this period, real GDP has still increased."
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Suppose nominal GDP in 2011 increased by 5% (over its previous level in 2010). Given this information we know with certainty that Group of answer choices real GDP increased during 2010 the price level increased during 2010 both the price level and the real GDP increased during 2010 either the price level or real GDP increased during 2010 more information is needed to answer this question.
Suppose that this year’s nominal GDP is $16 trillion. To account for the effects of inflation, we construct a price-level index in which an index value of 100 represents the price level five years ago. Using that index, we find that this year’s real GDP is $15 trillion. Given those numbers, we can conclude that the current value of the index is: .
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Nominal GDP ismultiple choiceadjusted for inflation, whereas real GDP is market or money value of all final goods and services produced by the economy in a given year.the market or money value of all final goods and services produced by the economy in a given year, whereas real GDP is adjusted for inflation.the sum of intermediate and final goods and services, whereas real GDP is only the sum of final goods and services.determined in the market, whereas real GDP is computed by a government agency.
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