Consider the following statements regarding 'Nominal GDP' and 'Real GDP': 1. Nominal GDP is evaluated at current prevailing prices. 2. Real GDP is evaluated at current market prices. 3. If Real GDP changes, it implies a change in prices only. Which of the statements given above is/are correct?

Correct Option The correct option is 1 only Explanation Gross Domestic Product (GDP) measures the monetary value of all final goods and services produced within a country's borders in a specific time period. To distinguish between growth due to inflation and growth due to actual production increases, economists calculate GDP in two ways: Nominal GDP (at current prices) and Real GDP (at constant prices). Statement-wise Analysis - Statement 1 is Correct: Nominal GDP is the value of all final goods and services produced in an economy during a given year, calculated using the current prevailing prices of that year. It does not adjust for inflation. - Statement 2 is Incorrect: Real GDP is calculated by valuing the output of goods and services at constant prices (prices of a specific base year). It eliminates the effect of price changes (inflation or deflation) to measure the actual volume of production. - Statement 3 is Incorrect: Since Real GDP uses fixed base-year prices, price fluctuations do not affect it. Therefore, if Real GDP changes, it implies a change in the physical volume or quantity of goods and services produced, not a change in prices. Key Takeaway Nominal GDP reflects both changes in output and changes in prices (inflation), whereas Real GDP reflects only changes in the physical output of an economy, making it a better indicator of economic growth.

Consider the following statements regarding 'Nominal GDP'… - NCERT Class 12 Economics MCQ

NCERT Class 12 Economics — Chapter 4: National Income Accounting

mcqeasy

Consider the following statements regarding 'Nominal GDP' and 'Real GDP':

Nominal GDP is evaluated at current prevailing prices.
Real GDP is evaluated at current market prices.
If Real GDP changes, it implies a change in prices only.

Which of the statements given above is/are correct?

NCERT textbook question

From NCERT Introductory Macroeconomics · Page 21

Options

A1, 2 and 3
B1 only
C2 only
D1 and 3 only

Did you get this right?

Solution

Correct Option

The correct option is

1 only

Explanation

Gross Domestic Product (GDP) measures the monetary value of all final goods and services produced within a country's borders in a specific time period. To distinguish between growth due to inflation and growth due to actual production increases, economists calculate GDP in two ways: Nominal GDP (at current prices) and Real GDP (at constant prices).

Statement-wise Analysis

Statement 1 is Correct: Nominal GDP is the value of all final goods and services produced in an economy during a given year, calculated using the current prevailing prices of that year. It does not adjust for inflation.
Statement 2 is Incorrect: Real GDP is calculated by valuing the output of goods and services at constant prices (prices of a specific base year). It eliminates the effect of price changes (inflation or deflation) to measure the actual volume of production.
Statement 3 is Incorrect: Since Real GDP uses fixed base-year prices, price fluctuations do not affect it. Therefore, if Real GDP changes, it implies a change in the physical volume or quantity of goods and services produced, not a change in prices.

Key Takeaway

Nominal GDP reflects both changes in output and changes in prices (inflation), whereas Real GDP reflects only changes in the physical output of an economy, making it a better indicator of economic growth.

Your note

More from Chapter 4: National Income Accounting

Consider the following statements regarding 'Inventory Investment': 1. It is treated as a part of capital formation. 2. Only planned accumulation of inventory is counted as investment; unplanned accumulation is treated as a loss. 3. It is always a positive value regardless of whether stocks increase or decrease. Which of the statements given above is/are correct?

medium

With reference to 'Personal Disposable Income (PDI)', consider the following statements: 1. It includes the income that households must pay as taxes to the government. 2. It is calculated by deducting personal tax payments and non-tax payments from Personal Income. 3. It is always less than Personal Income if personal taxes are positive. Which of the statements given above is/are correct?

easy

Which of the following is NOT considered a 'Final Good'?

easy

easy

With reference to the 'GDP Deflator', consider the following statements: 1. It is the ratio of Nominal GDP to Real GDP. 2. It measures the change in the quantity of goods produced, not prices. 3. Unlike the Consumer Price Index (CPI), it does not include the prices of imported goods. Which of the statements given above is/are correct?

medium

Keep practising Chapter 4: National Income Accounting

Work through every question from this NCERT chapter.

Browse all NCERT Class 12 Economics chapters