Real GDP is calculated in a way such that goods and services are evaluated at some constant set of prices. Since these prices remain fixed, if the Real GDP changes we can be sure that it is the volume of production which is undergoing changes. Nominal GDP, on the other hand, is simply the value of GDP at the current prevailing prices.

Real G.D.P. increases only when______________.

Production increases

The answer is Option 3: Production increases.

Real GDP is a measure of the total value of goods and services produced in an economy, adjusted for inflation. This means that real GDP reflects the actual change in the volume of goods and services produced, rather than just the change in prices.

Therefore, real GDP can only increase when the volume of production increases. If prices increase, but the volume of production remains constant, then real GDP will remain the same. If prices decrease, and the volume of production remains constant, then real GDP will increase.