If deflation is occurring and nominal GDP is increasing over time,then real GDP is
A)decreasing.
B)increasing at the same rate as nominal GDP.
C)increasing more slowly than nominal GDP.
D)increasing faster than nominal GDP.

Question

Quizplus · Accepted Answer

Deflation means the general level of prices is falling. If nominal GDP (which is calculated using current prices) is increasing while deflation is occurring, it implies that the volume of goods and services produced (real GDP) is increasing at a faster rate than nominal GDP. This is because the decrease in price levels (deflation) would normally lower the nominal GDP, so for nominal GDP to still increase, the real GDP must be increasing even more significantly.

If Deflation Is Occurring and Nominal GDP Is Increasing Over