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Suppose a small economy produces only MP3 players. IN year 1, 10,000 MP3 players are produce and sold at a price of $100 each. in year 2, 12,000 MP3 players are produced and sold at a price of $80 each. Which of the following statements is true? Real GDP and nominal GDP both increase Real GDP increase while nominal GDP remains constant Real GDP decreases while nominal GDP increases Real GDP increases while nominal GDP decreases

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jepessoa

Answer:

Real GDP increases while nominal GDP decreases

Explanation:

year 1: 10,000 MP3 players were produced at $100 each ⇒

  • real GDP = 10,000 x $100 = $1,000,000
  • nominal GDP = 10,000 x $100 = $1,000,000

year 2: 12,000 MP3 players were produced at $80 each ⇒

  • nominal GDP = 12,000 x $80 =$960,000,
  • real GDP = 12,000 x $100 = $1,200,000

real GDP year 2 increases from $1 million to $1.2 million

nominal GDP year 2 decreases from $1 million to $960,000

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