Which of following statements about Nominal and Real GDP are correct?i. If a country’s Nominal GDP increases, this country may produce more, less or even the same amount of goods and services.ii. Nominal GDP is always larger than Real GDP. iii. Nominal GDP is a widely used measure for a country’s economic performance using current prices, due to its convenience of calculation and interpretation.iv. Real GDP controls for changes in preferences and prices.

Question

BlackTom AI · Accepted Answer

We start by restating the question and the four answer choices to ensure clarity about what is being evaluated.
Question: Which of following statements about Nominal and Real GDP are correct?
i. If a country’s Nominal GDP increases, this country may produce more, less or even the same amount of goods and services.
ii. Nominal GDP is always larger than Real GDP.
ii i. Nominal GDP is a widely used measure for a country’s economic performance using current prices, due to its convenience of calculation and interpretation.
iv. Real GDP controls for changes in preferences and prices.

Answer options:
a. iii
b. i, ii, iii
c. i, iii
d. i, ii, iii, iv

Option-by-option analysis:
Option a: iii alone. Is this the only statement true? The first part, i, says that nominal GDP increases can occur with more, less, or the same physical output due to price effects and quantity changes. This is a correct characterization of nominal GDP behavior—it moves with both prices and quantities, so it is not limited to purely price or purely quantity changes. Therefore, claiming only iii is true is incorrect because i is also a correct statement. The remainder of option a misses this, so option a is false.
Option b: i, ii, iii. This asserts i as true, iii as true, and also ii as true. We know ii states that Nominal GDP is always larger than Real GDP, which is not correct in general because nominal GDP can be lower than real GDP in cases of deflation or when price levels fall relative to base-year prices. Hence including ii makes this option false. Also, since ii is false, option b cannot be entirely correct.
Option c: i, iii. This choice includes i, which is correct as discussed, and iii, which describes Nominal GDP being used with current prices for convenience and interpretation; this is a common characteristic of nominal GDP. Crucially, iv is not included here, and indeed iv states Real GDP controls for changes in preferences and prices, which is inaccurate because Real GDP controls for price level changes but not changes in preferences per se. Thus option c aligns with the correct pair of statements and excludes the incorrect iv.
Option d: i, ii, iii, iv. This includes ii (false) and iv (arguably misleading about what Real GDP controls for), so this option is clearly incorrect.

Putting the pieces together, the only statements that are truly correct are i and iii, and any option that includes ii or iv is flawed. Therefore, the combination i and iii is the accurate set of true statements.

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