ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Nominal GDP does not adjust for price changes over time.
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Nominal GDP does not capture true economic activity.
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Nominal GDP is not able to be used to make international comparisons.
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None of the above
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Detailed explanation-1: -Because it is measured in current prices, growing nominal GDP from year to year might reflect a rise in prices as opposed to growth in the number of goods and services produced. If all prices rise more or less together, known as inflation, then this will make nominal GDP appear greater.
Detailed explanation-2: -Why Do Economists Favor Real GDP? Real GDP is often favored over nominal GDP as it accounts for the effects of inflation. Thus, if nominal GDP grew at 4% in a given year, but the inflation rate was 5%, it actually shrunk by 1% in real (constant-dollar) terms.
Detailed explanation-3: -To determine “real” GDP, its nominal value must be adjusted to take into account price changes to allow us to see whether the value of output has gone up because more is being produced or simply because prices have increased.
Detailed explanation-4: -Nominal gross domestic product (GDP) is a measurement of economic output that doesn’t adjust for inflation.