ECONOMICS (CBSE/UGC NET)

ECONOMICS

BUSINESS CYCLES

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
The major difference between real and nominal gross domestic product (GDP) is that real GDP
A
excludes government transfer payments
B
excludes imports
C
is adjusted for price-level changes using a price index
D
measures only the value of final goods and services that are consumed
E
measures the prices of a market basket of goods purchased by a typical urban consumer
Explanation: 

Detailed explanation-1: -The main difference between nominal GDP and real GDP is the taking of inflation into account. Since nominal GDP is calculated using current prices, it does not require any adjustments for inflation.

Detailed explanation-2: -Nominal GDP measures output using current prices, while real GDP measures output using constant prices.

Detailed explanation-3: -Real GDP is a better indicator of economic growth because it can be compared with base year GDP. While nominal GDP cannot be compared to any previous year’s GDP.

Detailed explanation-4: -real GDP also includes services, whereas nominal GDP only takes goods into account.

Detailed explanation-5: -Nominal GDP reflects the raw numbers in current dollars unadjusted for inflation. Real GDP adjusts the numbers by fixing the currency value, thus eliminating any distortion caused by inflation or deflation.

There is 1 question to complete.