Question

Real gdp is measure in ______ prices while nominal gdp is measured in ____ prices.

a) intermediate, final.
b) base year, current year.
c) current year, base year domestic, foreign.

Answer 1

Real GDP is measured in base year prices, while nominal GDP uses current year prices. The base year's constant prices are used for real GDP to measure economic output without the distortions from inflation.

Step-by-step explanation:

Real GDP is measured in base year prices, while nominal GDP is measured in current year prices. The base year is the specific period's prices used to calculate the real GDP, which are kept constant to account for inflation. This method allows us to compare GDP over different years without the fluctuations caused by inflation. In contrast, nominal GDP uses the market prices from the same year the GDP is measured, reflecting the current market value of goods and services produced.

To convert nominal GDP to real GDP, economists use the GDP deflator, which adjusts for inflation. A price index is used in this calculation to reflect the change in prices between the base year and the current year. The formula for this conversion is Real GDP = Nominal GDP / (Price Index / 100).