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Sia

Question
Statistics
Posted 7 months ago

The nation of Asilia spent $200\$ 200 million on goods and services in 2010.
In 2011 the country spent $220\$ 220 million on goods and services, even though output decreased compared to 2010.

What happened to real GDP and nominal GDP between these two years?
Choose 1 answer:
(A) real GDP decreased; nominal GDP decreased
(B) real GDP is unchanged; nominal GDP increased
(C) real GDP increased; nominal GDP decreased
(D) real GDP decreased; nominal GDP increased
(E) real GDP increased; nominal GDP increased
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Answer from Sia
Posted 7 months ago
Solution by Steps
step 1
To understand the changes in real GDP and nominal GDP, we need to consider the definitions of both. 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 is nominal GDP adjusted for inflation or deflation, reflecting the value of all goods and services produced in a country in a given period, measured in constant prices
step 2
Given that Asilia spent 200millionin2010and200 million in 2010 and 220 million in 2011, the nominal GDP increased because the amount of money spent on goods and services increased
step 3
Since it is stated that the output decreased in 2011 compared to 2010, real GDP must have decreased because real GDP reflects the actual volume of production
Answer
D
Key Concept
Real vs. Nominal GDP
Explanation
Nominal GDP is based on current prices and can increase due to price changes, while real GDP is adjusted for inflation and reflects actual output, which can decrease if the physical volume of goods and services produced falls.

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