During World War II, the government did a good job measuring nominal GDP. But if the price level was calculated incorrectly, we might get a completely wrong idea about what happened with real GDP. During World War II, price ceilings were in place. That means that some things that would’ve been expensive were instead artificially cheap. Within a few years of the war’s end, price controls finally ended, and the price level spiked up about 20%.

If the true price level during the war was actually 20% higher than reported, would that mean real GDP is higher than the official number in part b, above, lower than that number, or is it still the same as that number? What are some other reasons why real GDP for that time period might exaggerate the standard of living for most citizens?

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Gross domestic product GDP measures the total output of an entire economy by adding up total consumption investment government expenditure and net exp... View the full answer