ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In Real GDP, Nominal GDP is taken into account and is adjusted for inflation or deflation to base year’s prices. As a result of this adjustment, the real GDP is a more accurate representation of a nation’s economic health.

Detailed explanation-2: -Real GDP measures an economy’s total goods and services in a given year, taking into account changes in price levels. It allows you to compare GDP by year because it takes into account inflation.

Detailed explanation-3: -Real GDP is nominal GDP adjusted for inflation. Real GDP is used to measure the actual growth of production without any distorting effects from inflation.

Detailed explanation-4: -The GDP deflator can be used to take inflation out of nominal GDP. If the GDP in 2009 was 150 and the GDP deflator in 2010 was 175, then the inflation rate was 25%. The advantage of real GDP as a measure is the fact that it only increases.

Detailed explanation-5: -Differences Between Nominal GDP and Real GDP. Nominal GDP measures the annual production of goods or services at the current price. On the other hand, Real GDP measures the yearly production of goods or services calculated at the actual cost without considering the effect of inflation.