Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Real GDP is adjusted for inflation, while nominal GDP is not
B
Nominal GDP measures total output in current dollars, while real GDP measures output in constant dollars
C
Real GDP includes only tangible goods, whereas nominal GDP includes services
D
Both measures use the same methodology but differ in the time period analyzed
Understanding the Answer
Let's break down why this is correct
Answer
The primary difference between nominal GDP and real GDP is how they measure a country's economic output. Nominal GDP looks at the value of all goods and services produced in a country at current prices, without adjusting for inflation. This means that if prices rise, nominal GDP can increase even if the actual quantity of goods produced stays the same. On the other hand, real GDP adjusts for inflation, providing a clearer picture of economic growth by reflecting the true value of goods and services at constant prices. For example, if a country produced the same amount of goods this year as last year, but prices went up, the nominal GDP might show growth, while the real GDP would show no change, indicating that the economy hasn't truly expanded.
Detailed Explanation
Real GDP takes into account inflation. Other options are incorrect because This answer mixes up the terms; This answer suggests real GDP only counts physical goods.
Key Concepts
Nominal GDP
Topic
Calculating Real GDP and Deficits
Difficulty
easy level question
Cognitive Level
understand
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