Question

Suppose that an economy's output does not change from one year to the next, but the price level doubles. What happens to NGDP and RGDP?

A
NGDP goes down, RGDP goes down.
B
NGDP does not change, RGDP does not change.
C
NGDP goes up, RGDP goes down.
D
NGDP goes up, RGDP does not change.

Answer 1

When the price level doubles but the economy's output remains unchanged, the nominal gross domestic product (NGDP) will also double. However, the real gross domestic product (RGDP) will remain the same.

Step-by-step explanation:

When the price level doubles but the economy's output remains unchanged, the nominal gross domestic product (NGDP) will also double.

This is because NGDP measures the value of goods and services produced at current prices.

However, since the output has not increased, the real gross domestic product (RGDP) will remain the same.

RGDP is a measure of the actual level of output in an economy, adjusted for changes in prices.