Question

When there is inflation ________________. (lo5)

a.real gdp increases faster than nominal gdp
b.nominal gdp increases faster than real gdp
c.nominal gdp and real gdp increase at the same time
d.there is no way of telling whether nominal gdp or real gdp increases faster?

Answer 1

Inflation causes nominal GDP increases faster than real GDP. In such case that the economy is booming the employment rate will increase, and if the GDP is increasing the economy may increase the interest rates that lead to inflation, the prices of goods and services will then increase.