ECONOMICS
GDP
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Shows the amount you are producing after removing the effects of inflation.
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Is meaningless because of the effects of inflation.
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Will be lower than nominal GDP, if there is inflation.
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Will be higher than nominal GDP, if there is deflation
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Detailed explanation-1: -Real GDP takes into consideration adjustments for changes in inflation. This means that if inflation is positive, real GDP will be lower than nominal, and vice versa.
Detailed explanation-2: -Statement 3 is incorrect: Real GDP is not always less than nominal GDP as nominal GDP can alos be less than real GDP if prices in the current year are less than the prices in the base year.
Detailed explanation-3: -Due to inflation, GDP increases and does not actually reflect the true growth in an economy. That is why the GDP must be divided by the inflation rate (raised to the power of units of time in which the rate is measured) to get the growth of the real GDP.
Detailed explanation-4: -The official measure of GDP does not include measurements of leisure time available, nonmarket production, production in the underground economy, the distribution of income, or production externalities (e.g., pollution).