Question

Real GDP is preferred to nominal GDP as a measure of economic performance because A. nominal GDP uses current prices and thus may over or understate true changes in output. B. nominal GDP only includes goods and excludes services. C. nominal GDP is not adjusted for population changes. D. real GDP accounts for changes in the quality of goods and services produced.

Answer 1

Answer:

The correct answer is option A.

Explanation:

Nominal GDP is the measure of economic growth which calculates the change in output on the basis of the current price. It is not inflation-adjusted measure and is affected by changes in the price level.  

Real GDP on the other hand, measures the change in economic output on the basis of constant price. It is an inflation-adjusted measure to calculate economic growth.  

That is why, real GDP is preferred, because nominal GDP may overestimate or underestimate the change in output.