Question

justinia is a country that produces three goods: guitars, physics books, and sandals. which of the following would definitely cause an increase in nominal gdp but not a change real gdp in justinia? choose 1 answer: a the quantity of goods produced increases; prices increase b the quantity of goods produced increases; prices decrease c the quantity of goods produced stays the same; prices increase d the quantity of goods produced decreases; prices stay the same e the quantity of goods produced increases; prices stay the same

Explanation:

To solve this, we recall the definitions:

• Nominal GDP = $\sum (\text{Current Price} \times \text{Current Quantity})$ (depends on both price and quantity).
• Real GDP = $\sum (\text{Base - Year Price} \times \text{Current Quantity})$ (depends only on quantity, as prices are fixed at a base year).

We analyze each option:

• Option A: Quantity and prices increase. Real GDP (depends on quantity) would increase (since quantity rises), so this is incorrect.
• Option B: Quantity increases, prices decrease. Real GDP increases (quantity up), so incorrect.
• Option C: Quantity stays the same, prices increase.
• Nominal GDP: Since prices rise and quantity is constant, $\text{Nominal GDP} = \text{Price (higher)} \times \text{Quantity (same)}$, so it increases.
• Real GDP: Depends on quantity (constant) and base - year prices (fixed), so it stays the same. This matches the requirement.
• Option D: Quantity decreases, prices stay same. Nominal GDP would decrease (quantity down), so incorrect.
• Option E: Quantity increases, prices stay same. Real GDP increases (quantity up), so incorrect.

Answer:

C. The quantity of goods produced stays the same; prices increase