Question

The difference between real and nominal GDP is that_______.

a. Nominal GDP only accounts for citizens.

b. Nominal GDP uses price-levels of some base year

c. Nominal GDP uses actual GDP also includes services, whereas nominal gdp only takes goods into account

Answer 1

Nominal GDP measures an economy's output using current prices, potentially exaggerating growth due to inflation. Real GDP, on the other hand, removes the effects of inflation, showing more accurately the true economic output.

Step-by-step explanation:

The difference between real and nominal GDP is that nominal GDP is measured using current market prices, whereas real GDP adjusts for inflation by applying prices from a base year. Nominal GDP can misrepresent economic growth if prices have increased due to inflation, showing a higher GDP without an actual increase in the production of goods and services.

Real GDP provides a more accurate depiction as it reflects the true value of goods and services by eliminating the effects of changing price levels. Therefore, real GDP is considered a better gauge for economic analysis. Understanding the difference is essential for analyzing economic health over time.