Question

If real GDP in 2012 using 2011 prices is higher than nominal GDP of 2012, then ________.

Answer 1

Answer:

d. prices in 2012 are lower than prices in the base year.

Explanation:

Gross domestic product (GDP) refers to the monetary value of all the goods and services that are produced in a country especially within a year.

Nominal GDP refers to GDP measured at current market prices without adjusting for inflation or the effect of changes in prices.

Real GDP refers to GDP measured at base year prices and is therefore corrected for change in prices or inflation.

Since real GDP is inflation adjusted by using base year price, the only reason that can make real GDP in 2012 using 2011 prices to be higher than nominal GDP of 2012 is when prices in 2012 are lower than prices in the base year. This is because a higher base year price is now used to estimate value the same quantity of goods and services produced in 2012 instead of a lower 2012 price.

Answer 2

b.

prices in 2012 are higher than prices in the base year