If nominal GDP rose, does that mean that production had to increase as well? Why or why not? An increase in nominal GDP means there must have been an increase in inputs. may have been due to an increase in the price level. means production must have increased. means production must have decreased. b. What about if real GDP increased? An increase in real GDP may have been due to an increase in the price level. means production must have increased because the price level is not held constant. means production must have decreased. means production must have increased because the price level is held constant. c. Why is it important to use real GDP when comparing changes over time? Changes in real GDP over time will accurately reflect changes in real production. should not be used. We should use changes in nominal GDP when analyzing changes over time. have a time lag, which helps us accurately predict business cycles. will include changes in the price level, which gives a complete picture.
a. If nominal GDP rose, does that mean that production had to increase as well? Why or why not?
An increase in nominal GDP
means there must have been an increase in inputs.
may have been due to an increase in the
means production must have increased.
means production must have decreased.
b. What about if real GDP increased?
An increase in real GDP
may have been due to an increase in the price level.
means production must have increased because the price level is not held constant.
means production must have decreased.
means production must have increased because the price level is held constant.
c. Why is it important to use real GDP when comparing changes over time?
Changes in real GDP
over time will accurately reflect changes in real production.
should not be used. We should use changes in nominal GDP when analyzing changes over time.
have a time lag, which helps us accurately predict business cycles.
will include changes in the price level, which gives a complete picture.
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