Select Any One Of the Following Options: If real GDP falls from one period to another, we can conclude thatnominal GDP fell.prices decreased.None of these necessarily occursinflation occurred.
Question
Select Any One Of the Following Options: If real GDP falls from one period to another, we can conclude thatnominal GDP fell.prices decreased.None of these necessarily occursinflation occurred.
Solution
None of these necessarily occurs.
Explanation: Real GDP is the measure of economic output adjusted for price changes i.e., inflation or deflation. A fall in real GDP from one period to another indicates a decrease in the production of goods and services in the economy. However, it does not necessarily mean that nominal GDP fell, prices decreased, or inflation occurred.
Nominal GDP could still rise if the prices of goods and services increase significantly (inflation). Similarly, prices could increase or decrease independently of changes in real GDP. Lastly, inflation refers to a general increase in prices and fall in the purchasing value of money, which can occur regardless of changes in real GDP. Therefore, none of these necessarily occurs when real GDP falls.
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