Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Refer to the above data. For the years shown, the growth of:
A) Real GDP exceeds the growth of nominal GDP
B) Nominal GDP exactly reflects increases in real output
C) Nominal GDP overstates increases in real output
D) Nominal GDP understates increases in real output

Question

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year.  Refer to the above data. For the years shown, the growth of:
A) Real GDP exceeds the growth of nominal GDP 
B) Nominal GDP exactly reflects increases in real output 
C) Nominal GDP overstates increases in real output 
D) Nominal GDP understates increases in real output

Quizplus · Accepted Answer

Nominal GDP increases faster than real GDP in all years, indicating that inflation is occurring. Therefore, nominal GDP overstates the increase in real output.

Answer the Question Based on the Following Price and Output