Question : Which of the following statement (s) is true?
A) Higher inflation means lower real GDP, ceteris paribus
B) The price index is 200 if nominal and real GDP are the same.
Option 1: Only B
Option 2: Both A and B
Option 3: Only A
Option 4: Neither A nor B
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Correct Answer: Only A
Solution : The correct option is Only A .
"Higher inflation means lower real GDP, ceteris paribus" is generally true. Ceteris paribus means holding other factors constant. When there's higher inflation (a general increase in prices), it can decrease the real GDP, as it erodes the purchasing power of money, reduces consumer spending, and can lead to resource allocation.
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