Chapter 3R, Problem 9MCQ

To determine

The question requires us to identify the true option when the real GDP is greater than the nominal GDP.

Explanation of Solution

To remove the effect of price change (or inflation), the base-year price is used in the calculation of Real GDP while the price of the current year is used in the calculation of nominal GDP.

If the real GDP in a year is greater than the nominal GDP in the same year, then it reflects the higher price in the base year. 

If the real GDP in a year is less than the nominal GDP in the same year, then it reflects prices were lower in the base year than in the current year.

So, in the current year if real GDP is greater than nominal GDP then the price level has reduced since the base year.

Thus, option “a” is correct.