Japan experienced periods of deflation a declining price level ...

[tth]

Japan experienced periods of deflation  a declining price level  during the 1990s. During a deflationary period, which would be higher: nominal GDP or real GDP? Why? Assume that the base year of choice is prior to the deflationary period.
 
  What will be an ideal response?

Question 2

Explain the output effectof a factor price increase.
 
  What will be an ideal response?

[GCabra]

Answer to Question 1

Real GDP would be higher, as long as the base year was before the period of deflation. Nominal GDP would be measured using the lower prices that resulted from the deflation. Real GDP would use the higher prices before the deflation, assuming the base year was before the deflation.

Answer to Question 2

An increase in the price of a factor leads to an increase in the cost of production. When a firm faces higher costs, it is likely to produce less in the short run. When the firm cuts its output, it lowers its demand for all factors of production.

[tth]

TYSM

[tkempin]

Thanks for the timely response, appreciate it