If real gdp increases by 1 percent next year and the price level goes up by 3 percent, by how much will nominal gdp increase?

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Business

Jenny Donaldson

3 March, 18:02

If real gdp increases by 1 percent next year and the price level goes up by 3 percent, by how much will nominal gdp increase?

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Clayton Waller · Answer 1

Since real GDP goes up by 1% and price level goes up by 3%, nominal GDP must go up by 3%. This is because real GDP is measured based off a base year's prices, but nominal GDP is not encumbered by such a price basis. Since the price level goes up by 3% (and 3/1 is 3), then nominal GDP goes up by 3% as well since the real GDP level only goes up by 1%.