Why is real GDP considered more useful than nominal GDP for welfare comparisons?
Answer and explanation
Correct answer: Because it separates the effect of price changes
The governing concept is the distinction between nominal and real GDP. Nominal GDP values current production at current prices, so it can rise merely because prices have increased. Real GDP values output using constant or base-year prices, allowing the change in physical production to be identified more clearly. Therefore option C is correct. Real GDP still does not measure income distribution or all non-market services, so options B and D confuse its usefulness with other welfare limitations.
Frequently asked questions
What is the correct answer to this question?
Because it separates the effect of price changes
Why is this the correct answer?
The governing concept is the distinction between nominal and real GDP. Nominal GDP values current production at current prices, so it can rise merely because prices have increased. Real GDP values output using constant or base-year prices, allowing the change in physical production to be identified more clearly. Therefore option C is correct. Real GDP still does not measure income distribution or all non-market services, so options B and D confuse its usefulness with other welfare limitations.
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.
