CFA Practice Question

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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 ______

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
tomalot Prices may not have dropped by 6% if output has increased.
daxian610 jwp2- how did you derive prices decreased 6%?
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