Question

Real GDP will decrease...

A) Only when the production of goods and services decreases

B) When the production of goods and services and prices decrease

C) When prices decrease or production decreases

D) Only when prices decrease

Answer 1

The correct answer is (A) Only when the production of goods and services decreases

Real GDP is market value of goods and services produced in the country measured at constant Prices(Base years prices).

Nominal GDP is market value of goods and services produced in the country measured at current Prices

Hence, Real GDP does not gets affected by prices and nominal GDP will get affected by prices. This is what is the difference between Real GDP and Nominal GDP.

Hence Real GDP will decrease only when Production of goods and services decreases and does not get affected by decrease in price because Real GDP is measured at constant prices.

Hence, the correct answer is (A) Only when the production of goods and services decreases