Question

6. if prices in economy decreases by 3% in the same year the quantity of goods...

6. if prices in economy decreases by 3% in the same year the quantity of goods and services produced by the economy increases 1%, nominal GDP______ and real GDP______.

a. increases, increases
b. decreases, increases
c. change in uncertain for both nominal and real GDP
d. increases, decreases
e. decreases, decreases
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Homework Answers

Answer #1

Answer:
(b) decreases, increases

Reasons:

  • In normal terms, the total value of goods and services produced in a country is called GDP.
  • Nominal GDP represents current market price value of goods and services produced in a country during the specified time period. So if prices are 3% decreased and production in 1% increased, net value of goods and services produce will be lower than previous year. So nominal GDP will decrease due to above change.
  • Real GDP represents value of total goods and services produced in the economy during a given time period within the country at predetermined base market price. So, real GDP will increase because predetermined price would be the old price on the other hand production is 1% increased so net real GDP will increase.

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