Question

Which of the following statements about GDP is correct? a. Nominal GDP values production at current prices, whereas real GDP values production at constant prices.

Answer 1

Answer:

Real GDP @ Constant Prices , Nominal GDP @ Current Prices

Explanation:

GDP is sum total of gross value of goods produced by an economy in its domestic territory during a given period of time (financial year) .

'Value' = Price X Quantity .

Nominal GDP takes current year prices to calculate GDP , Real GDP Constant (Base Year prices) to calculate GDP. So - Real GDP is a better measure of Economic Growth because it changes only due to change in 'quantity' of pr0duction (prices same) , but - Nomial GDP is a worse measure of Economic growth because it changes not only with 'quantity' of production & also with price change only (current price) .

Hence , Real GDP is also better for time series or Cross sectional Comparison .

However , Nominal GDP can be converted into Real GDP using GDP Deflator

( Nominal GDP / Real GDP ) x 100