WBCS.LIVE practice question

What is the main difference between 'Real GDP' and 'Nominal GDP'?

Solve this multiple-choice question and check the correct answer with its explanation below.

Answer options

  1. Real GDP excludes the service sector
  2. Real GDP is adjusted for inflation
  3. Nominal GDP is calculated at base year prices
  4. Nominal GDP excludes indirect taxes

Correct answer and explanation

Correct answer: Real GDP is adjusted for inflation

Explanation: āœ… Correct Answer: B) Real GDP is adjusted for inflation šŸ“š Explanation: Nominal GDP measures the value of all finished goods and services produced within a country at current market prices. Real GDP, however, uses a constant base year's prices to adjust for inflation, allowing for a more accurate comparison of actual production volume over time. Economists prefer Real GDP to determine if an economy is actually growing or just experiencing rising prices.