Learning Path
Question & Answer1
Understand Question2
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Explore TopicChoose the Best Answer
A
The increase in nominal GDP indicates the economy grew in real terms, unaffected by inflation.
B
The nominal GDP increase suggests that real GDP also increased, but inflation has diminished purchasing power.
C
The rise in nominal GDP shows that inflation was the only factor in the economy's growth.
D
The nominal GDP change cannot be analyzed without knowing the exact real GDP figures.
Understanding the Answer
Let's break down why this is correct
Answer
To understand the change in nominal GDP, we first need to know what nominal GDP is. It measures the total value of goods and services produced in a country at current prices, without adjusting for inflation. In this case, nominal GDP increased from $5,000 million to $6,000 million, which looks like a growth, but we must consider inflation as well. The price index rose from 120 to 130, indicating that prices increased, meaning some of that nominal GDP growth is due to higher prices rather than more production. To find real GDP, which reflects the actual growth in the economy without inflation, we can adjust the nominal GDP using the price index, showing that the real growth may be less than it appears at first glance.
Detailed Explanation
The rise in nominal GDP means the total money value of goods and services increased. Other options are incorrect because This answer assumes that the economy grew without considering price changes; This option suggests that only inflation caused the GDP rise.
Key Concepts
Nominal GDP vs. Real GDP
Inflation and Price Index
Economic Growth
Topic
GDP Calculations and Comparisons
Difficulty
medium level question
Cognitive Level
understand
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