Chapter 11, Problem 7MCQ

To determine

The question requires us to determine the true option which causes the real GDP to increase.

Explanation of Solution

The real GDP shows the average GDP per person in a country. GDP represents the welfare and standard of living of citizens in a country. It is the ratio of total output (real GDP) to the population of a country.

GDP per capita will increase when real GDP rises or the population falls. When all other things remain equal, a decrease in the population would lead to a rise in the real GDP per capita.

So, option “a” is correct.

The other options are incorrect because:

• A rise in population causes the real GDP per capita to fall when all other things remain equal.
• A price increase reduces the value of real GDP and, thus, the real GDP per capita.
• A fall in aggregate output causes the real GDP to fall and leads to a lower real GDP per capita.