Real GDP and Nominal GDP

Correct answer: A. Prices rose sufficiently

Explanation: Real GDP isolates changes in output by valuing production at base-year prices, whereas nominal GDP also includes current price changes. Here, real output falls by 4%, but the current-value measure rises by 3%. This can occur only when a sufficiently large price increase more than offsets the quantity decline. Therefore, option A is correct; the data do not imply higher output.

Correct answer: A. It may rise

Explanation: Nominal GDP equals the price level multiplied by the quantity of final output. If the nominal value remains unchanged while prices decline, the quantity component may increase to compensate for the lower price level. Since real GDP measures that quantity at fixed base prices, it may rise. Thus, option A is correct; the information does not prove a certain numerical increase.

Correct answer: B. It will fall

Explanation: Real GDP is obtained by removing the price effect from nominal GDP: Real GDP = Nominal GDP × 100 ÷ GDP deflator. When nominal GDP is fixed, an increase in the deflator increases the denominator. Consequently, real GDP must fall, because the same nominal value represents less output after allowing for higher prices. Hence, option B is correct.

Correct answer: B. ₹5,000

Explanation: The governing concept is real GDP per capita, which measures real output available per person. It is calculated by dividing real GDP by population: ₹50,000 crore ÷ 10 crore = ₹5,000 per person. The crore units cancel because both quantities use crore. Therefore option B is correct; A results from an extra division by ten, while C ignores population.

Correct answer: B. 4 percent

Explanation: Real GDP per capita equals real GDP divided by population. For a percentage approximation, growth in per-capita real GDP is output growth minus population growth: 6% − 2% = approximately 4%. The exact multiplicative result is slightly below 4%, but the question asks for an approximation. Thus B is correct; A and C omit one component, while D incorrectly adds the rates.

Correct answer: A. It may remain nearly unchanged

Explanation: The governing relationship is real GDP = nominal GDP ÷ price index, with the deflator commonly expressed as an index divided by 100. If nominal GDP and the deflator rise in the same proportion, the numerator and price adjustment offset one another, so real GDP may remain nearly unchanged. Therefore A is correct. The other options make absolute claims not supported by the relationship.

Correct answer: B. Real GDP

Explanation: Real GDP is the appropriate measure for comparing economic performance across years because it values output at constant prices and removes the effect of inflation. A rise in nominal GDP may simply reflect higher prices rather than more production. Therefore option B is correct. Tax revenue and money supply measure different aspects of the economy, while nominal GDP mixes output and price changes.

Correct answer: A. To reflect the current structure of the economy

Explanation: A base year provides the prices and economic structure used for constant-price measures such as real GDP. If it becomes too old, consumption patterns, technology, products, and the relative importance of industries may change, making comparisons less representative. Therefore A is correct. Changing the base year does not eliminate prices, population growth, or taxes.

Correct answer: A. Population grew faster than real GDP

Explanation: The governing concept is per-capita real GDP: real GDP per person equals total real GDP divided by population. If total real GDP increases by 4% while population increases by 6%, output per person decreases because population grows faster than production. Therefore option A is correct. Falling prices affect nominal measures, while higher exports or lower taxes do not necessarily create this specific result.

Correct answer: B. 8 percent

Explanation: The governing distinction is between nominal growth, which includes both price and quantity changes, and real growth, which removes the price effect. Using the requested approximate method, real GDP growth is nominal GDP growth minus inflation: 18% − 10% = 8%. Thus option B is correct. Option D incorrectly adds the rates, while 6% and 10% do not follow from the stated approximation.

Correct answer: C. 11 percent

Explanation: Nominal GDP reflects both the change in actual output and the change in prices. Under the simple additive approximation, nominal GDP growth equals real GDP growth plus price-level growth: 7% + 4% = 11%. Hence option C is correct. Option A subtracts the price change, option B ignores inflation, and option D multiplies the two rates rather than combining them appropriately.

Correct answer: B. Current prices

Explanation: Nominal GDP values the final goods and services produced during a period at the prices prevailing in that same period. These are called current prices, so it can change because of both output changes and price changes. Option B is therefore correct. Constant or base-year prices are used for real GDP, while export-only and international-average prices do not measure total domestic production.

Correct answer: B. To measure changes in real output

Explanation: Real GDP measures the value of output using constant or base-year prices, thereby removing the effect of changing prices. This allows economists to identify changes in the quantity of goods and services produced and to assess real economic growth. Option B is correct. Option A describes inflation, while government expenditure and foreign trade are only components or parts of broader economic activity.

Correct answer: C. Both are equal

Explanation: In the base year, the prices used for nominal GDP are the same as the reference prices used for real GDP. Since both measures value the same quantities at the same prices, their values are equal, making option C correct. Nominal GDP is not automatically higher, real GDP is not automatically higher, and neither measure becomes zero merely because the year is selected as the base year.

Correct answer: B. ₹3,000

Explanation: Nominal output value is calculated using current quantity and current price: Nominal value = quantity × current price. Substituting the given figures gives 120 × ₹25 = ₹3,000. Therefore, option B is correct. The calculation does not use a base-year price, because that would produce a real value rather than a nominal value. The other options result from incorrect multiplication or from using an unsupported price.

Correct answer: B. ₹2,700

Explanation: Real output value removes the effect of current price changes by valuing current production at the base-year price. Thus, real value = current quantity × base-year price = 180 × ₹15 = ₹2,700. Option B is therefore correct. Using a current price would calculate nominal value instead, so options based on a different price do not represent the requested real output value. The quantity remains current, but the price must be the base-year price.

Correct answer: C. ₹4,500

Explanation: Nominal value uses the current quantity together with the current price; it reflects the value at prices prevailing in the current period. Therefore, nominal value = 250 × ₹18 = ₹4,500, making option C correct. The base-year price of ₹14 is not used for this calculation. Multiplying 250 by ₹14 gives ₹3,500, which is the real value under the stated base-price method, not the nominal value.

Correct answer: B. ₹3,500

Explanation: Real value measures current output at the base-year price so that the effect of current price changes is excluded. Use the current quantity of 250 units and the base-year price of ₹14: 250 × ₹14 = ₹3,500. Hence option B is correct. The amount ₹4,500 comes from 250 × ₹18 and is the nominal value because it uses the current price. The quantity is not replaced by a base-year quantity.

Correct answer: B. GDP at current prices

Explanation: Nominal GDP calculates the market value of final goods and services using the prices prevailing in the same year. For this reason, it is commonly called GDP at current prices. Real GDP, by contrast, uses constant base-year prices. Green GDP adjusts the conventional measure for environmental costs, while per capita GDP divides GDP by population; neither is another name for nominal GDP.

Correct answer: A. Real output has increased

Explanation: Real GDP values production using constant, base-year prices, so changes caused only by inflation are removed. If real GDP rises, the economy has produced a greater quantity or volume of final goods and services, meaning real output has increased. Hence option A is correct. A price-only rise affects nominal GDP, while money supply and population cannot be inferred necessarily from real GDP alone.

Correct answer: A. Current prices

Explanation: Nominal GDP measures the value of final goods and services using the prices prevailing in the same current period. It therefore reflects both changes in production and changes in prices. Option A is correct. Constant or base-year prices are used for real GDP, not nominal GDP, while foreign or average prices are not the defining basis of this measure.

Correct answer: B. Constant base-year prices

Explanation: Real GDP values current-period output at constant prices, normally the prices of a selected base year. This method prevents general price changes from being mistaken for changes in production. Therefore option B is correct. Current prices are used for nominal GDP, whereas import-only and retail-only prices do not represent the comprehensive valuation required for real GDP.

Correct answer: A. Increase in real output

Explanation: Because real GDP is calculated using constant base-year prices, its movement primarily reflects a change in the quantity of goods and services produced. Thus an increase in real GDP indicates higher real output, making option A correct. A price increase alone affects nominal GDP and the deflator, while money supply and taxes are not direct interpretations of real GDP growth.

Correct answer: B. Real GDP

Explanation: Real GDP is calculated using constant base-year prices, so changes caused purely by inflation are excluded from its measurement. It is therefore more useful for comparing actual production across years, making option B correct. Nominal GDP uses current prices and includes inflation; personal and private income are different aggregates and do not automatically remove the price effect.

Correct answer: A. It will rise by about 20 percent

Explanation: Real GDP values current output using constant, base-year prices, so it reflects changes in physical production rather than price movements. If prices remain constant and output quantity increases by 20%, the value of output at those fixed prices also rises by about 20%. Therefore option A is correct. The other choices confuse real output growth with a fall or no change.