Since real GDP is adjusted for inflation and nominal GDP is not, nominal GDP must always be higher than real GDP. Do you agree or disagree? Why?
What will be an ideal response?
Disagree. It depends on whether the year being examined is before or after the base year. If after the base year, then nominal GDP will always exceed real GDP if inflation has occurred. If before the base year, then nominal GDP will always be less than real GDP if inflation has occurred. If the year being examined is before the base year and inflation has occurred, then the base year prices will exceed the prices of that year.
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Most monetarists favor:
A. frequent changes in the growth rate of the money supply to avoid inflation. B. placing the Federal Reserve under the Treasury. C. a steady, gradual shrinkage of the money supply. D. a constant increase in the money supply year after year equal to the potential annual growth rate in real GDP.
An increase in demand will increase prices most when supply is
A. elastic. B. perfectly inelastic. C. inelastic (but not perfectly inelastic). D. unit elastic.