Question

The difference between a nominal variable and a real variable is that A. real variables are calculated in​ current-year prices and the nominal variables are measured in dollars of the base year to adjust for the effects of inflation. B. nominal variables are economic variables that are adjusted for​ inflation, whereas real variables are valued in​ today's dollars. C. real variables are divided by the price index and multiplied by 100 to obtain nominal variables. D. nominal variables are calculated in​ current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation.

Answer 1

Option (D) is correct.

Step-by-step explanation:

Nominal variables are the variable which are calculated on the basis of current market prices such as nominal GDP. Nominal GDP incorporates all of the changes happened in a current year such as changes occured in the inflation or deflation in a current year.

On the other hand, real variables are those variables which are calculated on the basis of base year prices to take the effects of the inflation or deflation during the period of time. For example, Real GDP. real GDP is determined by the market prices of the base year, so that one can compare the actual effect effect of inflation or deflation during a period of time.