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.

Keeping output constant, the nominal GDP increases because of which of the following factor?

Prices increase

The answer is Option 1 : Prices increase.

Nominal GDP is the total market value of all final goods and services produced in an economy in a given period of time, valued at current market prices. If the prices of goods and services increase, then the nominal GDP will also increase, even if the quantity of goods and services produced remains constant. This is because the higher prices will result in a higher total value of production.

Option 2 is incorrect because if prices decrease, then the nominal GDP will also decrease, even if the quantity of goods and services produced remains constant. This is because the lower prices will result in a lower total value of production.

Option 3 is incorrect because if output decreases, then the nominal GDP will also decrease, regardless of whether prices increase or decrease. This is because the lower quantity of goods and services produced will result in a lower total value of production.

Option 4 is incorrect because if prices increase and output increases, then the nominal GDP will increase by an even greater amount. This is because the higher prices and the higher quantity of goods and services produced will both contribute to a higher total value of production.