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If real GDP growth is negative but nominal GDP growth is positive, which combination is possible?

Answer and explanation

Correct answer: Output fell but prices rose sufficiently

Real GDP isolates changes in production by valuing output at constant base-year prices. Thus, negative real GDP growth means that the quantity of final output decreased. Nominal GDP, however, reflects both quantities and current prices. If prices rise sufficiently, their increase can outweigh the fall in output, making nominal GDP grow. Therefore, a fall in output together with sufficiently higher prices makes option A possible and correct.

Related tags

Real GdpNominal GdpInflationOutput DeclineGdp GrowthGdp And WelfareNational Income And Related AggregatesEconomics

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