ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Nominal GDP is expressed in base year prices.
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Real GDP is adjusted for inflation because it is expressed in base year prices.
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Real GDP does not reflect economic growth.
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Nominal and Real GDP are the same.
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Detailed explanation-1: -Nominal GDP measures output using current prices, while real GDP measures output using constant prices.
Detailed explanation-2: -Key Takeaways. Nominal GDP is the total value of all goods and services produced in a given time period, usually quarterly or annually. 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-3: -Since nominal GDP is calculated using current prices, it does not require any adjustments for inflation.
Detailed explanation-4: -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-5: -While nominal GDP by definition reflects inflation, real GDP uses a GDP deflator to adjust for inflation, thus reflecting only changes in real output. Since inflation is generally a positive number, a country’s nominal GDP is generally higher than its real GDP.