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.
Frequently asked questions
What is the correct answer to this question?
Output fell but prices rose sufficiently
Why is this the correct answer?
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.
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.
