ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Economists use real GDP rather than nominal GDP to gauge economic well-being because real GDP is not affected by changes in prices, so it reflects only changes in the amounts being produced. You cannot determine if a rise in nominal GDP has been caused by increased production or higher prices.

Detailed explanation-2: -Real gross domestic product (GDP) is a measurement of economic output that accounts for the effects of inflation or deflation. It provides a more realistic assessment of growth than nominal GDP.

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: -A positive difference in nominal minus real GDP signifies inflation and a negative difference signifies deflation. In other words, inflation occurs when nominal GDP is higher than real GDP. Deflation happens when real GDP is higher than nominal GDP.