Answer to Question #133855 in Macroeconomics for ntapi

Question

year GDP at current prices
1 100
2 110

which of the following statements are correct?
a, The increase in GDP from year 1 to year 2 can be the result of an increase in the general price level.
b, The increase in GDP from 1 year to year 2 can be the result of an increase in real production.
c, from the given information, it is impossible to tell whether the 10% increases in GDP from year 1 to year 2 represents economic growth.

[1] all the statement are correct.
[2] a and b
[3] b and c
[4] a and c
[5] a

Answer 1

Solution:-

GDP ( gross domestic product ) is the value of final goods and services produce within the domestic territory of a country.

GDP at current price is the nominal GDP which is calculated at a price prevailing in the reporting period.

The increase in the value of good and services produced would means there is a positive economic growth.

Nominal GDP mainly increases due to two reasons, either there is an increase in the production of goods and services in the economy or there the prices of the goods and services had increased in the market which means price level has increased. Though excessive increase in price level will lead to inflation due to which demand of that product will fall in other countries leading to fall in export demand due to which production may fall.

Generally GDP is considered as a measure to see economic growth but GDP is not that reliable nominal GDP may increase due to increase in prices year after year rather than increase in production. This rise in price is inflation which is a negative force for economic agents which may lead to increase in unemployment, lower level of production etc. Real GDP is a more reliable measures to judge the Economic growth.

Hence, we can say all the statements are correct.