Over time, GDP may increase as the result of either (I) expansion in the quantities of goods produced or (ii) higher prices. Which of the following is true?
A) (I) will generally increase living standards, but (ii) will not.
B) (ii) will generally increase living standards, but (I) will not.
C) Both (I) and (ii) will generally increase living standards.
D) Neither (I) nor (ii) will generally increase living standards.

Question

Quizplus · Accepted Answer

An increase in the quantities of goods produced (option I) leads to higher output and productivity, which generally leads to an expansion of economic growth and improves living standards. On the other hand, an increase in prices (option ii) does not necessarily result in an expansion of economic growth, but instead creates inflation, and reduces purchasing power, leading to a decline in living standards for most individuals.

Over Time, GDP May Increase as the Result of Either