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Which of the following could cause nominal GDP to increase and real GDP to decrease? C....

Which of the following could cause nominal GDP to increase and real GDP to decrease?

C. The price level rises and the quantity of final goods and serverces produced falls

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Answer #1

The nominal GDP is the value of all final goods and services produced in a country in a year. It is calculated by multiplying the quantity with the current price level. If the price rises even if quantity remains the same, this will lead to an increase in nominal gdp. However Real gdp is calculated on the basis of a constant price index. It is only the change in quantity that affects real gdp. So if the quantity of goods and services produced falls the real gdp will decrease.

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