Question

Assuming that the physical output (i.e., the actual quantity of all final goods and services) of all final goods and services remains constant, if the general price level in the economy triples, so does nominal output.
a) true
b) false

Answer 1

Answer:

a) true

Explanation:

A rise in the general price level is called inflation and it affects the nominal value of the company's output. E.g. you sell pants and last year they sold at $10 and now since inflation rate is 10%, they sell at $11. But inflation only affects nominal values, it doesn't affect real values which are calculated using a base price of a certain year X, times the quantity sold. Following the example, your real output would not be $11 per pair of pants, instead it would still remain at $10 since the inflation is discounted.