Real GDP and Nominal GDP

Correct answer: C. ₹1,200

Explanation: Under the expenditure method, GDP equals consumption plus investment plus government spending plus net exports: GDP = C + I + G + X − M. Using the given constant-price figures, the calculation is ₹640 + ₹220 + ₹280 + ₹160 − ₹100 = ₹1,200. Because every component is measured at constant prices, this is real GDP. Option C is correct; the other choices reflect arithmetic mistakes or incorrect treatment of imports.

Correct answer: A. Output contraction with inflation

Explanation: The governing concept is the distinction between nominal and real GDP. A fall in real GDP means the economy’s actual output is contracting. A sharply rising GDP deflator means the general price level is increasing, indicating inflation. Nominal GDP can still rise because higher prices may more than offset the decline in production. Thus the situation is inflation combined with falling output, so option A is correct. The other choices require either rising output, falling prices, or stable prices.

Correct answer: C. It will remain unchanged

Explanation: The GDP deflator measures the economy-wide price level, not the physical volume of production by itself. If quantities increase while every relevant price stays unchanged, nominal GDP and real GDP increase in the same proportion. Their ratio, and therefore the deflator, remains unchanged. Option C is correct. A rise in output can increase GDP, but it does not imply inflation; the other options confuse quantity growth with a change in prices.

Correct answer: B. ₹800 crore

Explanation: The GDP deflator equals (Nominal GDP ÷ Real GDP) × 100. Rearranging gives Real GDP = (Nominal GDP × 100) ÷ Deflator. Substitution gives (1,200 × 100) ÷ 150 = ₹800 crore. Hence option B is correct. ₹600 and ₹900 result from incorrect division, while ₹1,800 reverses the deflator relationship.

Correct answer: B. ₹1,200 crore

Explanation: The GDP deflator formula is Deflator = (Nominal GDP ÷ Real GDP) × 100. Therefore, Nominal GDP = Real GDP × Deflator ÷ 100. Using the given values, 1,500 × 80 ÷ 100 = ₹1,200 crore. Option B is correct. Because the deflator is below 100, nominal GDP is lower than real GDP in this calculation; options C and D ignore or reverse that adjustment.

Correct answer: C. ₹1,100

Explanation: Real GDP values current production using base-year prices, so it removes the effect of changing prices. Calculate each good’s contribution: ₹10 × 50 = ₹500 and ₹20 × 30 = ₹600. Adding them gives ₹500 + ₹600 = ₹1,100. Therefore, option C is correct. Using current prices instead would calculate nominal GDP, not real GDP.

Correct answer: B. ₹1,320

Explanation: Nominal GDP measures current production at current prices. The quantities remain 50 and 30, while current prices are ₹12 and ₹24. Therefore, nominal GDP = (₹12 × 50) + (₹24 × 30) = ₹600 + ₹720 = ₹1,320. Option B is correct. The real-GDP calculation uses base-year prices, while using current prices gives the nominal measure.

Correct answer: C. ₹1,400 crore

Explanation: The GDP deflator formula is (Nominal GDP ÷ Real GDP) × 100. Rearranging it gives Real GDP = Nominal GDP × 100 ÷ GDP deflator. Substitution gives ₹1,540 crore × 100 ÷ 110 = ₹140 crore × 10 = ₹1,400 crore. Thus option C is correct. Dividing nominal GDP by 110 without multiplying by 100 would incorrectly ignore the index scale.

Correct answer: C. ₹990

Explanation: Real GDP values current quantities at base-year prices, thereby holding prices constant and isolating the output effect. For the two goods: ₹9 × 60 = ₹540 and ₹18 × 25 = ₹450. Adding these values gives ₹540 + ₹450 = ₹990. Therefore option C is correct. Using current prices would calculate nominal GDP instead, not real GDP.

Correct answer: C. It will remain unchanged

Explanation: The GDP deflator is a price index, calculated as nominal GDP divided by real GDP and multiplied by 100. If all prices are unchanged, both nominal GDP and real GDP fall because quantities fall, but they fall in the same proportion. Their ratio therefore remains unchanged. Consequently, the deflator does not change, so option C is correct. Options A, B, and D incorrectly treat a quantity change as a price-level change.

Correct answer: A. It will fall by 20 percent

Explanation: The GDP deflator equals (Nominal GDP ÷ Real GDP) × 100. Let the original real GDP be R and nominal GDP be N; the original deflator is N/R. After a 25% rise, real GDP becomes 1.25R, while N is unchanged. The new deflator is N/(1.25R), or 0.8 of the original, so it falls by 20%. Thus option A is correct; a 25% denominator increase does not cause an equal 25% fall.

Correct answer: B. It will rise by 14 percent

Explanation: The deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. When real GDP remains constant, any proportional change in nominal GDP is reflected fully in the deflator. A 14% rise in nominal GDP therefore produces a 14% rise in the deflator. Option B is correct. Option A halves the change without justification, option C reverses its direction, and option D ignores the movement in the numerator.

Correct answer: C. 120

Explanation: The GDP deflator index is obtained from the identity: Deflator = (Nominal GDP index ÷ Real GDP index) × 100. Substituting the given values gives (162 ÷ 135) × 100. Since 162 ÷ 135 = 1.2, the deflator index is 120. Therefore, option C is correct. The other values result from inaccurate division or from failing to multiply the ratio by 100.

Correct answer: C. 160

Explanation: The index relationship is Deflator = (Nominal GDP index ÷ Real GDP index) × 100. Rearranging gives Nominal GDP index = (Deflator × Real GDP index) ÷ 100. Thus, (128 × 125) ÷ 100 = 160. Option C is correct. The result is not obtained by simply adding the two indices; the deflator expresses a ratio between nominal and real GDP, so multiplication followed by division by 100 is required.

Correct answer: C. 110

Explanation: Use the GDP identity: Deflator = (Nominal GDP index ÷ Real GDP index) × 100. Solving for the real GDP index gives (Nominal GDP index ÷ Deflator) × 100. Substitution yields (143 ÷ 130) × 100 = 110. Therefore, option C is correct. The deflator removes the price effect from nominal GDP; dividing by it converts the nominal index into the corresponding real index.

Correct answer: B. It must fall

Explanation: Nominal GDP is determined by multiplying real GDP by the GDP deflator, with both expressed as comparable index values. If real GDP falls and the deflator also falls, each factor is below its previous level and their positive product must fall as well. Thus B is correct. A and C are impossible under the stated changes, while D would be relevant only if one factor rose enough to offset the other.

Correct answer: C. ₹2,560

Explanation: Real GDP values current-period quantities at base-year prices, thereby removing the effect of current price changes. For the first good, the value is ₹28 × 40 = ₹1,120. For the second, it is ₹45 × 32 = ₹1,440. Adding them gives ₹1,120 + ₹1,440 = ₹2,560. Therefore option C is correct; using current prices would calculate nominal GDP instead.

Correct answer: C. ₹3,128

Explanation: Nominal GDP measures current production using current-period prices. The quantities remain 40 and 32, while the current prices are ₹35 and ₹54. Thus the first good contributes ₹35 × 40 = ₹1,400, and the second contributes ₹54 × 32 = ₹1,728. Their total is ₹3,128, so option C is correct. Using base prices would instead produce real GDP, not nominal GDP.

Correct answer: C. About 3%

Explanation: The governing concept is real GDP per person, calculated as real GDP divided by population. For small percentage changes, the approximate growth rate is found by subtracting population growth from real GDP growth: 9% − 6% = 3%. Hence option C is correct. The 15% option adds the rates, 9% ignores population growth, and 6% treats population growth as the output gain.

Correct answer: C. About 6%

Explanation: Nominal GDP changes because of both changes in prices and changes in the quantity of output. Using the approximate relationship, real output growth is nominal GDP growth minus price-level growth: 18% − 12% = 6%. Therefore option C is correct. Adding the rates gives an incorrect result, while 18% ignores inflation and 12% measures only the price increase, not real production.

Correct answer: A. ₹600 crore

Explanation: The governing formula is Real GDP = (Nominal GDP ÷ GDP deflator) × 100, when the deflator is expressed as an index with base 100. Substituting the values gives (660 ÷ 110) × 100 = 600 crore. Hence option A is correct. Options B and D multiply by the index, while C uses an incorrect divisor or conversion.