Nominal GDP uses current prices as a measure of the value of goods and services

Question

Nominal GDP uses current prices as a measure of the value of goods and services produced, while real GDP uses prices of goods and services in a base year to measure value.

Suppose an economy consists of three goods: pizza, sodas, and televisions. The table below provides the prices and quantities of these goods in 2000 and 2003.


Pizzas Sodas Television

Price in 2000 $15 $1.50 $200
Quantity in 2000 20 60 10

Price in 2003 $18 $1.75 $225
Quantity in 2003 25 80 20



8.1. True or False: When the economy experiences inflation, it is possible for nominal GDP to increase while real GDP remains unchanged.

Explanation / Answer

True

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