- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 10. Aggregate Output, Prices, and Economic Growth
- Subject 1. Gross Domestic Product
CFA Practice Question
If nominal GDP increased from $4 billion to $5 billion while real GDP increased from $3 billion to $4 billion, it follows that ______
B. output increased at a faster rate than the price level.
C. the price level increased at a faster rate than output.
A. the price level rose by 25 percent.
B. output increased at a faster rate than the price level.
C. the price level increased at a faster rate than output.
Correct Answer: B
Since output rose by 33 percent but nominal GDP increased by only 25 percent, the price level must have increased by less than 25 percent.
User Contributed Comments 6
| User | Comment |
|---|---|
| jwp2 | Prices DECREASED 6% |
| awlhoaln | what 's Price level change in this case? |
| kuan | Real GDP measured with reference to some base year. Therefore output current year=4/3 previous output. Since nominal GDP increased only 4 to 5 billion, there is likely a deflation relative to the previous year. e.g. GDP deflator (base year)/GDP deflator (current year)= Real GDP/ Nominal GDP =3/4 previous year =4/5 current year |
| danlan | (5/4)/(4/3)=0.93985 so price level dropped 6%. |
| tomalot | Prices may not have dropped by 6% if output has increased. |
| daxian610 | jwp2- how did you derive prices decreased 6%? |