COST ACCOUNTING
PERFORMANCE MEASUREMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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If there was inflation, the number would be overstated
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It is a great method ____ it always shows economic performance, not inflation
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Detailed explanation-1: -Inflation will cause nominal GDP to rise, meaning that in looking at year-over-year changes, a rise in nominal GDP does not necessarily reflect economic growth but rather reflects the inflation rate within that period.
Detailed explanation-2: -Answer and Explanation: Nominal GDP measures the value of final commodities and services produced without taking into consideration the effect of inflation. Therefore it gives the incorrect value of economic growth from one year to the next.
Detailed explanation-3: -Not all productive activity is included in GDP. For example, unpaid work (such as that performed in the home or by volunteers) and black-market activities are not included because they are difficult to measure and value accurately.
Detailed explanation-4: -When we calculate GDP using today’s prices, we are creating a measure called nominal GDP. However, prices can change even if output doesn’t change. Because of that, our measure of output might get distorted by something like inflation.