Mario and Lucia are discussing current economic data printed in the morning newspaper.

Mario is quite happy about the fact that nominal GDP has increased at a steady rate for the last two years and asserts that this is very good news, since it means that they are better off than a few years ago. Lucia warns Mario about his conclusions and suggests that she has observed a steady increase in many prices during the same period, which might undermine Mario’s conclusion. Based on this information:

a) Who do you think is right? Explain why.

b) Is it possible that Mario and Lucia could be worse off than two years ago?
Measuring Inflation