Final answer:
In a period of deflation, real GDP is greater than nominal GDP because prices are falling, and nominal GDP overstates the actual output when not adjusting for price changes.
Step-by-step explanation:
When a country is experiencing deflation, changes in real GDP (Gross Domestic Product) are greater than changes in nominal GDP. Deflation indicates a general decline in prices throughout the economy, which means that the nominal GDP—the measure of the economy based on current prices—without adjusting for price changes, can be misleading. As such, during deflation, nominal GDP might not actually reflect a true increase in economic output.
To accurately assess the economy's performance, it is crucial to convert nominal GDP to real GDP, which reflects the value after adjusting for inflation or deflation. When deflation occurs, nominal GDP is adjusted downward to reflect real changes in output, leading to real GDP being higher than the nominal GDP. This is because the nominal GDP is deflated by the lower prices.