Question

Which of the following statements about GDP is correct? Group of answer choices Nominal GDP consistently underestimates the value of production, whereas real GDP consistently overestimates the value of production. Nominal GDP values production at market prices, whereas real GDP values production at the cost of the resources used in the production process. Nominal GDP values production at current prices, whereas real GDP values production at constant prices. Nominal GDP values production at constant prices, whereas real GDP values production at current prices

Answer 1

Answer: Nominal GDP values production at current prices, whereas real GDP values production at constant prices.

Explanation;

Nominal GDP calculates the total output in the Economy based on the current prices of commodity which means that it will include inflation.

Real GDP on the other hand removes the effect of inflation by basing the GDP on the prices in a base year which is not usually the current year thereby eliminating the effect of inflation and using constant pricing. Real GDP is therefore better for comparison over the years.