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Why is real GDP better than nominal GDP for welfare comparisons?

Answer and explanation

Correct answer: Because it separates the effect of price changes

Nominal GDP values current production at current prices, so it can increase merely because prices have risen. Real GDP values production using constant or base-year prices and therefore focuses more closely on changes in the quantity of output. This makes comparisons across years more meaningful for welfare analysis, although real GDP still does not fully capture distribution, unpaid work or environmental quality. Hence C is correct.

Related tags

Real GdpNominal GdpPrice ChangesGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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