Suppose the total market value of all the final goods and services produced in the country of Cannedada was $4 billion in 2008 (measured in 2008 prices) and $5 billion in 2009 (measured in 2009 prices). Which of the following statements is definitely correct?A. Average price levels increased in Cannedada between 2008 and 2009.
B. Production increased in Cannedada between 2008 and 2009.
C. Nominal GDP decreased in Cannedada between 2008 and 2009.
D. The change in real GDP cannot be determined without more information.

Question

22-02-2020
Business

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Suppose the total market value of all the final goods and services produced in the country of Cannedada was $4 billion in 2008 (measured in 2008 prices) and $5 billion in 2009 (measured in 2009 prices). Which of the following statements is definitely correct?A. Average price levels increased in Cannedada between 2008 and 2009.
B. Production increased in Cannedada between 2008 and 2009.
C. Nominal GDP decreased in Cannedada between 2008 and 2009.
D. The change in real GDP cannot be determined without more information.

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enyo enyo · Answer 1 · 2020-02-22T07:19:05+01:00

Answer:

D. The change in real GDP cannot be determined without more information.

Explanation:

GDP is the total value (P X Q) of final goods & services produced in an economy during a period of time.

Real GDP is measured at constant base year price level, such that it reflects change only due to quantity & not price rise (inflation).

Nominal GDP is measured at current year price level, it reflects change due to both quantity & price rise (inflation).

Nominal GDP / Real GDP = GDP Deflator. It measures the average price level change in current period relative to base period, helps eliminating price change effect & converting Nominal GDP into Real GDP .

Cannedada: 2018 Nominal GDP = $4 Billion, 2019 Nominal GDP = $5 Billion

Nominal GDP has increased between 2008 & 2009. Production rise between 2008, 2009 cant be found without 2009 Real GDP. Average price level rise between 2008 & 2009 cant be found without 2009 Real GDP (through GDP deflator).