Question 44

Output doubled

If real GDP doubled from year 1 to year 2, it indicates that the total output of goods and services produced in the economy has increased by 100%. This reflects a direct relationship between real GDP and the output level, confirming that output must have doubled.

A) Output doubled

This option is correct because real GDP measures the value of all finished goods and services produced within a country's borders, adjusted for inflation. Therefore, if real GDP has doubled, it inherently means that the output of the economy has also doubled.

B) Prices more than doubled

This option is incorrect because real GDP is adjusted for inflation, meaning it reflects the value of output without the impact of price changes. Thus, even if prices increased, it wouldn’t affect the real GDP doubling; the statement cannot be inferred.

C) Govt spending doubled

This option is also incorrect. Real GDP can increase due to various factors including private sector output, increases in consumption, investment, or exports, and is not solely dependent on government spending. Therefore, government spending doubling is not a necessity for real GDP to double.

D) Exchange rate doubled

This option is incorrect as well. The exchange rate is influenced by numerous economic factors, and a change in real GDP does not directly imply any specific change in the exchange rate. Therefore, it cannot be assumed that the exchange rate doubled simply because real GDP doubled.

Conclusion

The correct answer is A, as it directly reflects the definition and calculation of real GDP, confirming that a doubling of real GDP equates to a doubling of output. All other options fail to establish a necessary connection to the doubling of real GDP, making A the only option that holds true in this context.