Question

Which statement represents most correctly the relationship between nominal GDP and real GDP?

a. Nominal GDP measures base-year production using base-year prices, whereas real GDP measures current production using current prices.
b. Nominal GDP measures current production using base-year prices, whereas real GDP measures current production using current prices.
c. Nominal GDP measures current production using current prices, whereas real GDP measures current production using base-year prices.
d. Nominal GDP measures current production using current prices, whereas real GDP measures base-year production using base-year prices.

Answer 1

The answer is: C) Nominal GDP measures current production using current prices, whereas real GDP measures current production using base-year prices.

Step-by-step explanation:

Nominal GDP measures the production of total finished products and services within a country during a particular period using the current prices of the products and services. Real GDP measures the production of total finished products and services within a country during a particular period using base-year prices of the products and services.

Nominal GDP doesn't take in account inflation, while real GDP is adjusted by inflation. Nominal GDP is also higher than the real GDP since recent prices are higher than the base-year prices (due to inflation). Real GDP can be used to compare the economy's evolution over periods of time.