1. Assuming the price level decreased, and real gross domestic product (GDP) is greater than nominal...

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1. Assuming the price level decreased, and real gross domestic product (GDP) is greater than nominal...

1. Assuming the price level decreased, and real gross domestic product (GDP) is greater than nominal GDP. Is the current year before or after the base year?

2. Official GDP may understate the actual output of an economy. Give one possible reason to explain this.

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Answer 1

Answer #1

Since real GDP is greatee than nominal GDP, deflation must have occured which means current year is after the base year. If real GDP was greater than nominal GDP then inflation would have occurred.

Official GDP understates actual output of economy as it doesn't account for unpaid work, resold items, non market transactions and ignores externality as well as doesnt incorporate measures of welfare.

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