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Calculating Real GDP and Deficits
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If the nominal GDP increases while the GDP deflator remains constant, it can be concluded that the real GDP has also increased.

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True

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False

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Answer

Nominal GDP is the total value of all goods and services produced in a country, measured at current prices, without adjusting for inflation. The GDP deflator is a measure that reflects the prices of all new, domestically produced, final goods and services in an economy. If the nominal GDP increases and the GDP deflator stays the same, it means that the increase in nominal GDP is not due to higher prices but rather an increase in the actual quantity of goods and services produced. Therefore, we can conclude that real GDP, which accounts for inflation and measures the true growth of the economy, has also increased. For example, if a country produced more cars and houses this year than last year, and the prices of these goods did not change, the rise in nominal GDP indicates real economic growth.

Detailed Explanation

This statement is true. Other options are incorrect because This answer is based on a misunderstanding.

Key Concepts

Real GDP vs. Nominal GDP
GDP Deflator
Budget Deficits
Topic

Calculating Real GDP and Deficits

Difficulty

medium level question

Cognitive Level

understand

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