Problem: Suppose nominal GDP in the economy increased from $5,000 billion to $5,500
billion. Can you conclude that aggregate production, income, and job opportunities increased as
well? Explain your answer.
Nominal GDP growth can be due to:
1. A rise in real output (more goods/services) — which would likely increase jobs and incomes.
2. Simply higher prices (inflation) with no change in real output — meaning no real growth in production, income, or job opportunities.
To know if real economic activity rose, you would need to adjust nominal GDP for inflation using a price index.
billion. Can you conclude that aggregate production, income, and job opportunities increased as
well? Explain your answer.
Nominal GDP growth can be due to:
1. A rise in real output (more goods/services) — which would likely increase jobs and incomes.
2. Simply higher prices (inflation) with no change in real output — meaning no real growth in production, income, or job opportunities.
To know if real economic activity rose, you would need to adjust nominal GDP for inflation using a price index.