“Real Gross Domestic Product (GDP) is a better indicator of economic growth of a nation as compared to the Nominal Gross Domestic Product (GDP).”
Do you agree with the given statement? Justify your answer with a valid hypothetical numerical example.
Do you agree with the given statement? Justify your answer with a valid hypothetical numerical example.
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Solution and Explanation
Nominal GDP is calculated using current market prices, whereas Real GDP adjusts for changes in price levels (inflation/deflation). Example: If Nominal GDP increases from Rs. 500 crore to Rs. 600 crore, but inflation is 10%, Real GDP will show an actual growth of only Rs. 40 crore (Rs. 100 crore increase - Rs. 60 crore inflation).
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