Which measure is more appropriate when GDP rises only because prices increase?
Answer and explanation
Correct answer: Real GDP
The governing concept is the distinction between nominal and real GDP. Nominal GDP can rise merely because prices have increased, even when the quantity of production is unchanged. Real GDP values output at constant prices and therefore removes the price effect. Hence option B is correct; population, exports, and tax revenue alone cannot show the change in real production or welfare.
Frequently asked questions
What is the correct answer to this question?
Real GDP
Why is this the correct answer?
The governing concept is the distinction between nominal and real GDP. Nominal GDP can rise merely because prices have increased, even when the quantity of production is unchanged. Real GDP values output at constant prices and therefore removes the price effect. Hence option B is correct; population, exports, and tax revenue alone cannot show the change in real production or welfare.
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.
