A country's nominal GDP rises by twenty-five percent while the price level also rises by twenty-five percent. What is the exact change in real GDP if both indices rise from the same base?
Answer and explanation
Correct answer: No change
Real GDP is obtained by dividing nominal GDP by the price index, with the relevant base scaling understood. Suppose nominal GDP is initially 100 and the price index is 100; after equal 25% rises they become 125 and 125. The ratio remains 125/125 = 1, just as 100/100 = 1. Thus the exact change in real GDP is zero, so option B is correct.
Frequently asked questions
What is the correct answer to this question?
No change
Why is this the correct answer?
Real GDP is obtained by dividing nominal GDP by the price index, with the relevant base scaling understood. Suppose nominal GDP is initially 100 and the price index is 100; after equal 25% rises they become 125 and 125. The ratio remains 125/125 = 1, just as 100/100 = 1. Thus the exact change in real GDP is zero, so option B is correct.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
