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Question:

Which statement best explains how unadjusted GDP could grow between 2007 and 2008 while real GDP remains stable?

A The increase in unadjusted GDP was due to price increases, not increases in production.
Explaination

In this graph, the real GDP line shows the total value of goods and services produced for all years using 2005 prices. Thus, the real GDP line only measures production changes, while unadjusted GDP measures changes in both prices and production together. Because we know that production (real GDP) was flat between 2007 and 2008, we also know the increase in unadjusted GDP was entirely due to inflation. A period of price increases is inflation, not deflation . The concept of GDP has little to do with the concept of supply and demand . Answer (C) is only a half-truth because unadjusted GDP measures both changes in production and prices together.