Author Question: Can nominal GDP ever be less than real GDP? What will be an ideal ... (Read 86 times)

Capo · **on:** Jun 29, 2018

Can nominal GDP ever be less than real GDP?

What will be an ideal response?

Question 2

Suppose the quantity of money and real GDP do not change. If velocity increases, then the

A) price level will fall.
B) price level will rise.
C) inflation rate will fall.
D) real interest rate will fall.
E) real interest rate will rise.

leeeep · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Yes, nominal GDP can be less than real GDP. If prices generally fall from one period to the next, then nominal GDP is less than real GDP. However, in the U.S. economy, because prices generally rise, nominal GDP typically is greater than real GDP (except in the base period.) But, there is no economic law that states that prices must generally rise and so there is no necessity for nominal GDP to be larger than real GDP.

Answer to Question 2

B