Which of the following statement/statements is/are true?
A) Higher inflation means lower real GDP, ceteris paribus.
B) Price Index is 200 if nominal GDP and real GDP are the same.
Show answer & explanation
Correct answer: C
Explanation
The correct answer is Option 3 i.e. Only A.
Statement A is true. Higher inflation typically erodes the purchasing power of money, which can lead to lower real GDP if nominal GDP remains unchanged, as it reflects reduced economic output in constant prices.
Statement B is false. The price index cannot be 200 if nominal GDP and real GDP are the same. If nominal GDP equals real GDP, the price index would be 100, indicating no inflation. A price index of 200 would imply that nominal GDP is twice the real GDP, reflecting significant inflation.