Which of the following statements is false?
Click on the arrows to vote for the correct answer
A. B. C. D. E.Explanation
The change in nominal GDP usually exceeds that of real GDP because inflation is usually positive.
However, in a flat or declining price environment real GDP would exceed nominal GDP change.
Let's go through each statement and determine which one is false.
A. real GDP excludes earnings by domestic citizens abroad This statement is true. Real GDP is a measure of the value of goods and services produced within a country's borders. It excludes income earned by domestic citizens abroad because it focuses on the domestic production.
B. the change in real GDP plus the inflation rate equals growth in nominal GDP This statement is true. Nominal GDP is the value of goods and services produced in current prices, whereas real GDP is adjusted for inflation. The change in real GDP reflects the growth in output, while the inflation rate represents the increase in prices. When you add the change in real GDP and the inflation rate together, you get the growth in nominal GDP.
C. changes in nominal GDP include the impact of changes in the money supply This statement is true. Nominal GDP includes the impact of changes in the money supply because an increase in the money supply can lead to higher spending, which in turn increases nominal GDP. Changes in the money supply can affect the level of economic activity and the overall price level, both of which influence nominal GDP.
D. real GDP measures strictly changes in national output This statement is true. Real GDP measures changes in national output by considering the value of goods and services produced within a country's borders. It is adjusted for inflation, allowing for a comparison of output levels over time.
E. change in nominal GDP is always greater than the change in real GDP This statement is false. The change in nominal GDP is not always greater than the change in real GDP. In fact, it can be equal to or less than the change in real GDP. The difference between nominal GDP and real GDP is the impact of inflation. If the inflation rate is positive, the change in nominal GDP will be greater than the change in real GDP. However, if there is deflation (negative inflation rate), the change in nominal GDP could be less than the change in real GDP.
Therefore, the false statement is E. change in nominal GDP is always greater than the change in real GDP.