ECONOMICS
ECONOMIC GROWTH
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It includes inflation
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It takes into account price changes
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It shows the distribution of income in the economy
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It includes non-economic factors
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Detailed explanation-1: -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-2: -Answer and Explanation: The correct answer is option (ii) Real GDP is not influenced by price changes, but nominal GDP is. Nominal GDP (Gross Domestic Product) is determined by considering the market value of all finished goods and services produced in an economy during a given period.
Detailed explanation-3: -Real GDP. One thing people want to know about an economy is whether its total output of goods and services is growing or shrinking. But because GDP is collected at current, or nominal, prices, one cannot compare two periods without making adjustments for inflation.
Detailed explanation-4: -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-5: -Why is real GDP rather than nominal GDP used when comparing growth over time? Real GDP is used when comparing growth over time because real GDP controls inflation and accurately reflects economic growth.