Question

If both nominal GDP and real GDP increase from one year to the next, but the increase in real GDP is smaller than that of nominal GDP, we can conclude that:

Answer 1

If both nominal GDP and real GDP increase from one year to the next, but the increase in real GDP is smaller than that of nominal GDP, we can conclude that both output and prices went up.

What is nominal GDP and real GDP?

Nominal GDP is GDP calculated using current year prices. It includes the effect of changes in the price level. Real GDP is GDP calculated using base year prices. Real GDP has been adjusted for price level changes. It reflects the value of goods and services produced in an economy.

Nominal GDP = Real GDP + changes in price level

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