Suppose the amount of output doesn't change in an economy, but the consumer price index (CPI) increases.

What happens to nominal gross domestic product (GDP) and real GDP?
Choose 1 answer:
(A) Nominal GDP increases; real GDP increases.
(B) Nominal GDP increases; real GDP decreases.
(C) Nominal GDP increases; real GDP doesn't change.
(D) Nominal GDP decreases; real GDP decreases.
(E) Nominal GDP doesn't change; real GDP increases.

Question

Suppose the amount of output doesn't change in an economy, but the consumer price index (CPI) increases.

What happens to nominal gross domestic product (GDP) and real GDP?
Choose 1 answer:
(A) Nominal GDP increases; real GDP increases.
(B) Nominal GDP increases; real GDP decreases.
(C) Nominal GDP increases; real GDP doesn't change.
(D) Nominal GDP decreases; real GDP decreases.
(E) Nominal GDP doesn't change; real GDP increases.

Accepted Answer

***C*** ∻Key Concept∻ ⚹Nominal vs Real GDP⚹ ∻Explanation∻ ⚹Nominal GDP is the market value of goods and services produced in an economy, measured in current prices, while real GDP is measured in constant prices, adjusted for inflation. If the CPI increases and the output remains constant, nominal GDP will increase because it reflects higher prices. However, real GDP will remain unchanged because it is adjusted for price changes and reflects the volume of output.⚹◊How does inflation impact the calculation of real GDP?⍭ Generate me a similar question◊

Sia