If nominal GDP increases by 4 percent, then
A) real output has increased by 4 percent
B) the price level has increased by 4 percent
C) consumer spending must have increased by 4 percent
D) it is possible that all of the increase was caused by an increase in the price level
E) net exports increased by 4 percent

Question

Quizplus · Accepted Answer

Nominal GDP can increase due to either an increase in real output or an increase in the price level. Therefore, it is possible that all of the increase in nominal GDP was caused by an increase in the price level. Options A, C, and E are incorrect because they assume that the increase in nominal GDP is solely due to an increase in real output. Option B is also incorrect because it assumes that the increase in nominal GDP is solely due to an increase in the price level.

If Nominal GDP Increases by 4 Percent, Then