Learning Path
Question & Answer1
Understand Question2
Review Options3
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Explore TopicChoose the Best Answer
A
Nominal GDP does not account for inflation, which can distort comparisons over time.
B
Nominal GDP includes only the production of goods and excludes services, limiting its scope.
C
Nominal GDP is always a better measure than real GDP for assessing economic health.
D
Nominal GDP takes into consideration the standard of living in a country.
Understanding the Answer
Let's break down why this is correct
Answer
Nominal GDP measures the total 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 amount of goods and services produced has not changed. For example, if a country produces the same number of cars but their prices double, the nominal GDP will show a rise, misleading us to think the economy is growing. Additionally, nominal GDP does not account for differences in living costs between countries, so it can be difficult to compare economies accurately. Therefore, while nominal GDP can give a snapshot of economic activity, it does not provide a complete picture of how well an economy is performing.
Detailed Explanation
Nominal GDP measures the total value of goods and services at current prices. Other options are incorrect because This statement suggests that nominal GDP only counts goods and ignores services; This option claims that nominal GDP is always better than real GDP for understanding the economy.
Key Concepts
nominal GDP
limitations of GDP
Topic
GDP Calculations and Comparisons
Difficulty
medium level question
Cognitive Level
understand
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