If the total production of final output in a nation is rising and the general price level is also rising, then the nation’s real GDP will be rising faster than its nominal GDP.
Indicate whether the statement is true or false.
Answer: False.
Explanation: Price Level(or GDP Deflator) = Nominal GDP/Real GDP
=> Real GDP = Nominal GDP/Price
% change in (AB) = % change in A + % change in B
% change in (A/B) = % change in A - % change in B.
Hence,
% change in (Real GDP) = % change in (Nominal GDP) - % Change in (Price Level)
Given that Both Nominal GDP and Price level are rising i.e. % Change in (Price Level) > 0
=> % change in Real GDP < % change in Nominal GDP
Hence Nominal GDP is rising faster than Real GDP.
Hence, the nation’s real GDP will not be rising faster than its nominal GDP
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