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Consider the following statements.
1. Real GDP is calculated in a way such that the goods and services are evaluated at some constant set of prices
2. Nominal GDP, on the other hand, is simply the value of GDP at the current prevailing prices
Which of these statements are correct?
- a)1 Only
- b)2 Only
- c)Both 1 and 2
- d)None of them
Correct answer is option 'C'. Can you explain this answer?
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Verified Answer
Consider the following statements. 1. Real GDP is calculated in a way...
- In order to compare the GDP figures (and other macroeconomic variables) of different countries or to compare the GDP figures of the same country at different points of time, we cannot rely on GDPs evaluated at current market prices.
- For comparison we take the help of real GDP. Real GDP is calculated in a way such that the goods and services are evaluated at some constant set of prices (or constant prices).
- Since these prices remain fixed, if the Real GDP changes we can be sure that it is the volume of production which is undergoing changes. Nominal GDP, on the other hand, is simply the value of GDP at the current prevailing prices.
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Consider the following statements. 1. Real GDP is calculated in a way...
Real GDP and Nominal GDP
Real GDP:
- Real GDP stands for Real Gross Domestic Product.
- It is a measure of the total value of all final goods and services produced within an economy in a given period of time, adjusted for inflation.
- Real GDP takes into account changes in both quantity and price levels of goods and services produced.
- It is calculated by evaluating goods and services at a constant set of prices, known as the base year prices.
- The base year prices are used to remove the effect of inflation from the calculation, allowing for a more accurate comparison of economic output over time.
- Real GDP provides a measure of the actual physical output of an economy, independent of changes in prices.
- It is often used to compare economic growth between different periods or countries.
Nominal GDP:
- Nominal GDP stands for Nominal Gross Domestic Product.
- It is a measure of the total value of all final goods and services produced within an economy in a given period of time, without adjusting for inflation.
- Nominal GDP is calculated using the current prevailing prices of goods and services.
- It reflects the current market value of goods and services produced.
- Nominal GDP can be influenced by changes in both quantity and price levels of goods and services produced.
- It does not take into account the effects of inflation, which can distort the true economic output.
- Nominal GDP is often used to measure the size of an economy or to compare the economic output of different countries.
Correct statements:
1. Real GDP is calculated in a way such that the goods and services are evaluated at some constant set of prices.
- This statement is correct. Real GDP is calculated by using a constant set of prices, typically from a base year, to remove the effects of inflation and measure changes in physical output.
2. Nominal GDP, on the other hand, is simply the value of GDP at the current prevailing prices.
- This statement is also correct. Nominal GDP is calculated using the current prices of goods and services, without adjusting for inflation.
Therefore, both statements 1 and 2 are correct.
Real GDP:
- Real GDP stands for Real Gross Domestic Product.
- It is a measure of the total value of all final goods and services produced within an economy in a given period of time, adjusted for inflation.
- Real GDP takes into account changes in both quantity and price levels of goods and services produced.
- It is calculated by evaluating goods and services at a constant set of prices, known as the base year prices.
- The base year prices are used to remove the effect of inflation from the calculation, allowing for a more accurate comparison of economic output over time.
- Real GDP provides a measure of the actual physical output of an economy, independent of changes in prices.
- It is often used to compare economic growth between different periods or countries.
Nominal GDP:
- Nominal GDP stands for Nominal Gross Domestic Product.
- It is a measure of the total value of all final goods and services produced within an economy in a given period of time, without adjusting for inflation.
- Nominal GDP is calculated using the current prevailing prices of goods and services.
- It reflects the current market value of goods and services produced.
- Nominal GDP can be influenced by changes in both quantity and price levels of goods and services produced.
- It does not take into account the effects of inflation, which can distort the true economic output.
- Nominal GDP is often used to measure the size of an economy or to compare the economic output of different countries.
Correct statements:
1. Real GDP is calculated in a way such that the goods and services are evaluated at some constant set of prices.
- This statement is correct. Real GDP is calculated by using a constant set of prices, typically from a base year, to remove the effects of inflation and measure changes in physical output.
2. Nominal GDP, on the other hand, is simply the value of GDP at the current prevailing prices.
- This statement is also correct. Nominal GDP is calculated using the current prices of goods and services, without adjusting for inflation.
Therefore, both statements 1 and 2 are correct.
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Consider the following statements. 1. Real GDP is calculated in a way such that the goods and services are evaluated at some constant set of prices2. Nominal GDP, on the other hand, is simply the value of GDP at the current prevailing pricesWhich of these statements are correct?a) 1 Onlyb) 2 Onlyc) Both 1 and 2d) None of themCorrect answer is option 'C'. Can you explain this answer?
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