Question

If the percent change in nominal GDP is 3 percent and inflation is 4 percent, what is the percent change in real GDP?

True/False: The percent change in real GDP is greater than the percent change in nominal GDP.

Answer 1

The percent change in real GDP is -1%, calculated by subtracting the inflation rate (4%) from the percent change in nominal GDP (3%). Therefore, the statement that the percent change in real GDP is greater than the percent change in nominal GDP is false.

Step-by-step explanation:

If the percent change in nominal GDP is 3 percent and inflation is 4 percent, we can calculate the percent change in real GDP. Real GDP accounts for changes in price levels, which is what inflation measures. The formula to determine the growth rate in real GDP (percent change in quantity) is:

% change in Quantity = % change in Nominal - % change in Price

Applying this formula:

% change in real GDP = 3% - 4% = -1%

Therefore, the percent change in real GDP is -1%. This indicates that when adjusted for inflation, the real value of the economy has actually decreased by 1%, despite the nominal GDP growing by 3%. The statement that the percent change in real GDP is greater than the percent change in nominal GDP is False, as the real GDP has decreased in this scenario.