GDP and Welfare

Correct answer: A. The country with the smaller population

Per capita GDP is calculated as total GDP divided by total population: per capita GDP = GDP ÷ population. If the two countries have the same numerator, the country with the smaller denominator will have the larger average output per person. Thus A is correct. A larger population lowers the average when GDP is fixed, while C and D ignore the division by population.

Correct answer: A. Real GDP grows faster than the population

Real GDP per capita equals real GDP divided by population. It rises when real GDP grows faster than population. A rise in the price level alone affects nominal values, not real GDP per capita. Therefore, A is correct.

Correct answer: B. The rise may be due only to prices, so real welfare need not have increased

Nominal GDP uses current prices, while real GDP adjusts for price changes. If nominal GDP rises but real GDP stays constant, the increase may be due to higher prices rather than more output. It therefore does not establish that real welfare increased. B is correct.