If GDP rises only because prices increase which measure gives a better assessment of welfare?
Answer and explanation
Correct answer: Real GDP
Nominal GDP is calculated using current prices, so it can rise even when the physical volume of production is unchanged. Real GDP values output at constant or adjusted prices and removes the effect of general price changes. It therefore gives a better indication of whether the economy is producing more goods and services, which is more relevant for welfare. Option B is correct; the other measures do not isolate real output.
Frequently asked questions
What is the correct answer to this question?
Real GDP
Why is this the correct answer?
Nominal GDP is calculated using current prices, so it can rise even when the physical volume of production is unchanged. Real GDP values output at constant or adjusted prices and removes the effect of general price changes. It therefore gives a better indication of whether the economy is producing more goods and services, which is more relevant for welfare. Option B is correct; the other measures do not isolate real output.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
