Question

True or False, and explain each answer:

a. If prices are rising, then real GDP rises more slowly than nominal GDP.

b. If you are told that the annual growth-rate of Econland’s real GDP in 2008 was –3.2%, it means that the real GDP in Econland in 2008 was negative.

c. It is possible for nominal GDP to rise during a period of recession.

d. If Nation A has a higher real GDP than Nation B, then we conclude that the average person in Nation A has a higher standard of living than in Nation B.

Answer 1

a)

If prices are rising, then real GDP rises more slowly than nominal GDP.

True statement, Nominal GDP rises when prices rise. Here prices are rising, thus real GDP rises more slowly than nominal GDP.

b)

If you are told that the annual growth-rate of Econland’s real GDP in 2008 was –3.2%, it means that the real GDP in Econland in 2008 was negative.

False Statement, real GDP growth rate can be negative but Real GDP as whole can not be negative.

c)

It is possible for nominal GDP to rise during a period of recession.

Recession is characterized by falling prices, hence nominal GDP can not rise in wake of falling prices. Thus, this is False statement.

d)

If Nation A has a higher real GDP than Nation B, then we conclude that the average person in Nation A has a higher standard of living than in Nation B.

This is false statement, higher real GDP does not decide that average person in national A has higher living standard. Higher living standard can be concluded from per capita income.