Final answer:
Real GDP adjusts for inflation to provide a more accurate depiction of economic growth, whereas Nominal GDP does not, potentially giving a misleading impression of increased production when in fact it could merely reflect inflation.
Step-by-step explanation:
The statement that Real GDP accounts for changes in product quality; nominal GDP does not, is false. Both Real GDP and Nominal GDP measure the total value of goods and services produced in an economy, but the difference lies in how they account for inflation. Nominal GDP measures the value of goods and services using current prices without adjusting for inflation or deflation, whereas Real GDP adjusts for changes in the price level using a price index such as the GDP deflator. This adjustment gives us a clearer picture of the actual increase in an economy's production, excluding any effects from changes in price levels.
To understand the economic performance over time, analysts utilize the GDP deflator to convert Nominal GDP to Real GDP. Without this adjustment, comparing Nominal GDP from different years could be highly misleading, as it may reflect inflation rather than true increases in the production of goods and services. Hence, Real GDP is a more accurate metric for assessing the real output and economic growth.