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In Class 12 Economics, this topic from National Income and Related Aggregates explains how Real GDP and Nominal GDP measure the value of goods and services produced in an economy. Students learn the difference between current-price and constant-price measures, understand how inflation and changes in the price level affect GDP, and explore the role of the GDP deflator. The topic also develops skills for comparing economic growth across years more accurately and interpreting national income data.
Practice questions
01 If real GDP is ₹20,000 crore and the deflator is 105, what will be nominal GDP?
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Answer and explanation
Correct answer: C. ₹21,000 crore
Explanation: The GDP deflator formula is (Nominal GDP ÷ Real GDP) × 100. Rearranging it gives Nominal GDP = (GDP deflator × Real GDP) ÷ 100. Thus, Nominal GDP = (105 × ₹20,000 crore) ÷ 100 = ₹21,000 crore. Hence option C is correct. The deflator of 105 indicates that current prices are 5% above base-year prices, so nominal GDP is higher than real GDP; option B ignores this price effect.
02 If nominal GDP is ₹16,500 crore and the deflator is 110, what will be real GDP?
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Answer and explanation
Correct answer: C. ₹15,000 crore
Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. Solving for real GDP gives Real GDP = (Nominal GDP × 100) ÷ GDP deflator. Therefore, Real GDP = (₹16,500 crore × 100) ÷ 110 = ₹15,000 crore. Option C is correct. Dividing nominal GDP by 110 without multiplying by 100 would give an incorrect result, while option D applies the deflator in the wrong direction.
03 If current-year quantity is (150) units and the base-year price is ₹12 then what is the real output value?
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Answer and explanation
Correct answer: C. ₹1,800
Explanation: Real output value measures current production while holding prices constant at the base-year level. The required calculation is current-year quantity × base-year price = 150 × ₹12 = ₹1,800. Therefore option C is correct. The current price is deliberately not supplied because it is not used in this calculation; using another price or quantity would produce the distractor values.
04 A good has current quantity of (200) units, current price of ₹15 and base price of ₹10. What is its nominal value?
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Answer and explanation
Correct answer: C. ₹3,000
Explanation: Nominal value uses both current-year quantity and current-year price. Substituting the given figures gives 200 units × ₹15 = ₹3,000. Hence option C is correct. The base price of ₹10 is not used for nominal valuation; multiplying 200 by ₹10 would give ₹2,000, which is the real or constant-price value. The other options do not follow either relevant calculation.
05 A good has current quantity of (200) units, current price of ₹15 and base price of ₹10. What is its real value?
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Answer and explanation
Correct answer: B. ₹2,000
Explanation: Real value is calculated by valuing current-year production at the base-year price. Thus, real value = current quantity × base price = 200 × ₹10 = ₹2,000. Option B is correct. The amount ₹3,000 uses the current price of ₹15 and is therefore nominal value, not real value. The distinction prevents current price inflation from being mistaken for an increase in physical output.
Explanation: Nominal GDP is calculated by multiplying the quantities of final goods and services produced during a year by the prices prevailing in that same year. Since it uses current-period prices and includes their changes, it is also called GDP at current prices. GDP at constant prices is real GDP, while per-capita and green GDP are different measures.
Explanation: Real GDP measures the value of final output using prices from a selected base year rather than prices prevailing in the current year. Keeping prices constant removes the effect of inflation or deflation and allows output quantities to be compared across years. Hence real GDP is also called GDP at constant prices; option B is correct.
08 Which statement is most appropriate when real GDP increases?
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Answer and explanation
Correct answer: A. The economy's real output has increased
Explanation: Real GDP values current production at constant or base-year prices, so it removes the direct effect of price changes. Consequently, an increase in real GDP indicates that the quantity of final goods and services produced has increased, making option A correct. Option B describes a possible nominal change, while options C and D are unrelated claims that cannot be inferred from real GDP alone.
Explanation: Nominal GDP values the currently produced final goods and services using the prices prevailing in the same current year. For this reason, it is also called GDP at current prices. Real GDP, in contrast, uses constant or base-year prices to remove the effect of price changes. Per-capita GDP is GDP divided by population, and green GDP is an adjusted environmental measure, so option A is correct.
Explanation: Real GDP measures current production using prices from a chosen base year, or another fixed price reference. It is therefore called GDP at constant prices. Holding prices constant allows changes in GDP to reflect changes in physical output rather than inflation. GDP at current prices is nominal GDP, while the other two expressions are not standard names, so option B is correct.
Explanation: Nominal GDP is calculated by valuing the quantity of final goods and services produced during the current year at the prices prevailing in that same year. In simple form, nominal GDP equals current quantity multiplied by current price. Base-year prices are used for real GDP, while previous-year or international prices are not the defining basis here. Therefore, option B is correct.
Explanation: Real GDP values the current quantity of final goods and services at base-year prices, which are held constant for comparison. Thus, real GDP = current quantity × base-year price in the basic method. This removes the influence of changes in the general price level and highlights changes in actual output. Current-year prices produce nominal GDP, so option B is correct.
13 If the current-year price is higher than the base-year price, which GDP will be higher for the same output?
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Answer and explanation
Correct answer: B. Nominal GDP
Explanation: For the same physical output, nominal GDP uses the higher current-year price, while real GDP uses the lower base-year price. Since the quantities are identical, the comparison depends on the prices: quantity × current price is greater than quantity × base-year price. Hence nominal GDP exceeds real GDP, making option B correct. The two measures would be equal only if the relevant prices were equal.
14 If the current-year price is lower than the base-year price, which GDP will be higher for the same output?
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Answer and explanation
Correct answer: B. Real GDP
Explanation: With identical output quantities, nominal GDP is calculated using the lower current-year price, whereas real GDP is calculated using the higher base-year price. Therefore, quantity multiplied by the base-year price is greater than quantity multiplied by the current-year price, so real GDP exceeds nominal GDP. Option B is correct. The result is not that both values double, and there is a clear price-based relationship.
15 If real GDP is ₹10,000 crore and the deflator is 115, what will be nominal GDP?
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Answer and explanation
Correct answer: C. ₹11,500 crore
Explanation: The relationship is GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Rearranging gives nominal GDP = (Deflator × Real GDP) ÷ 100. Therefore, nominal GDP = (115 × ₹10,000 crore) ÷ 100 = ₹11,500 crore. The deflator raises real GDP by 15% because it is 15 points above 100. Thus, option C is correct; the other values do not apply the formula correctly.
16 If nominal GDP is ₹12,600 crore and the deflator is 105, what will be real GDP?
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Answer and explanation
Correct answer: B. ₹12,000 crore
Explanation: From the deflator formula, real GDP = (Nominal GDP ÷ Deflator) × 100. Substituting the values gives real GDP = (₹12,600 crore ÷ 105) × 100 = ₹120 crore × 100 = ₹12,000 crore. Since the deflator is 105, the price level is 5% above the base year, so nominal GDP should be slightly higher than real GDP. Therefore, option B is correct.
17 If real output falls but prices rise very sharply, what may happen to nominal GDP?
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Answer and explanation
Correct answer: A. It may rise
Explanation: Nominal GDP measures the value of current production using current prices, so it is affected by both output and prices. If the fall in output is smaller than the increase caused by sharply higher prices, the total monetary value can rise. Therefore, option A is correct. It need not be zero, halve, or equal real GDP; real GDP removes the effect of price changes by using base-year prices.
18 If prices fall but output quantity rises sufficiently, what happens to real GDP?
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Answer and explanation
Correct answer: A. It will rise
Explanation: Real GDP measures changes in the quantity of goods and services by valuing output at fixed base-year prices. Consequently, a fall in current prices does not directly reduce real GDP. If the quantity of output rises sufficiently, the value calculated at base-year prices also rises. Thus option A is correct; option B confuses real GDP with nominal GDP, while C incorrectly treats prices as the sole determinant.
19 Why are nominal GDP and real GDP generally equal in the base year?
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Answer and explanation
Correct answer: A. Because current-year and base-year prices are the same
Explanation: Nominal GDP is calculated using the prices prevailing in the current year, whereas real GDP is calculated using base-year prices. In the base year itself, the current-year prices and the selected base-year prices are identical. Hence both measures multiply the same quantities by the same prices and are generally equal. Output is not assumed to be zero, and taxes or imports do not explain this equality.
20 If 120 units are produced at a current price of ₹50, what will be nominal GDP?
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Answer and explanation
Correct answer: B. ₹6,000
Explanation: Nominal GDP values current-year output at current-year prices. Therefore, use the multiplication 120 units × ₹50 per unit = ₹6,000. Option B is correct. A calculation using a base-year price would instead relate to real GDP, not nominal GDP. The quantity must also be multiplied by the price per unit; it should not be added to the price or multiplied by an unrelated figure.
21 If 120 units are valued at a base-year price of ₹40, what will be real GDP?
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Answer and explanation
Correct answer: B. ₹4,800
Explanation: Real GDP measures current output using base-year prices so that changes in the price level do not distort the quantity comparison. Multiply the 120 units by the base-year price of ₹40: 120 × ₹40 = ₹4,800. Therefore, option B is correct. A value of ₹6,000 would require a price of ₹50, while ₹4,000 and ₹5,200 do not follow from the stated quantity and base price.
22 In the current year, 200 units are produced. The current price is ₹15 and the base-year price is ₹12. What will be nominal GDP?
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Answer and explanation
Correct answer: B. ₹3,000
Explanation: Nominal GDP is calculated by valuing current-year production at current-year prices. The relevant figures are therefore 200 units and ₹15, not the base-year price of ₹12. Calculation: 200 × ₹15 = ₹3,000. Hence option B is correct. The amount ₹2,400 is real GDP because it uses the base-year price, while the other amounts do not follow from the stated data.
23 If output quantity rises by 10% while base prices remain unchanged, by approximately how much will real GDP rise?
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Answer and explanation
Correct answer: B. 10%
Explanation: Real GDP values current output at fixed base-year prices, so it changes because of quantity changes rather than current-price movements. With base prices unchanged and output quantity increasing by 10%, the value of production at those fixed prices also increases by approximately 10%. Therefore, option B is correct; the other percentages do not match the stated quantity change.
24 If prices rise by 8% while output quantity remains constant, by approximately how much will nominal GDP rise?
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Answer and explanation
Correct answer: B. 8%
Explanation: Nominal GDP is calculated using the prices prevailing in the same period, so it reflects both price and quantity changes. When output quantity is constant, only the price effect changes the nominal value. An 8% increase in prices therefore produces approximately an 8% increase in nominal GDP. Hence, option B is correct.
25 If nominal GDP rises by 15% and real GDP rises by 9%, what approximate price rise may be inferred?
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Answer and explanation
Correct answer: B. 6%
Explanation: The GDP identity links nominal GDP, real GDP, and the price level. For a simple approximation, nominal GDP growth is divided into real output growth and price growth. Therefore, approximate price growth = 15% − 9% = 6%. Option B is correct. The exact rate could differ slightly because compound changes are not purely additive.
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