Question

Read the statement below carefully, and decide whether it is true or false. And then EXPLAIN your answer (whether “true “ or “false”).

If the total production of final output in a nation is rising and the general price level is also rising, then the nation’s real GDP will be rising faster than its nominal GDP.

Answer 1

Price Level(or GDP Deflator) = Nominal GDP/Real GDP

=> Real GDP = Nominal GDP/Price

% change in (AB) = % change in A + % change in B

% change in (A/B) = % change in A - % change in B.

Hence

% change in (Real GDP) = % change in (Nominal GDP) - % Change in (Price Level)

Given that Both Nominal GDP and Price level are rising i.e. % Change in (Price Level) > 0

=> % change in Real GDP < % change in Nominal GDP

Hence Nominal GDP is rising faster than Real GDP.

Hence, the nation’s real GDP will not be rising faster than its nominal GDP

=> This Statement is FALSE