Real GDP and Nominal GDP

Correct answer: B. Real GDP

Explanation: Real GDP is the better indicator of actual output growth because it values production at constant prices and therefore removes much of the effect of inflation. An increase in real GDP indicates that the quantity of goods and services produced has risen. Option B is correct. Nominal GDP can increase merely because prices rose, while personal and private income measure income concepts rather than total real output.

Correct answer: B. One hundred

Explanation: The GDP deflator measures the current price level relative to the base-year price level. Its formula is GDP Deflator = (Nominal GDP ÷ Real GDP) × 100. When nominal GDP and real GDP are equal, the ratio is 1, so the index becomes 1 × 100 = 100. Therefore, option B is correct; 50, 200, and 0 would imply different price relationships.

Correct answer: B. General price level has risen

Explanation: Nominal GDP values current production at current prices, whereas real GDP values production at constant base-year prices. If real GDP is unchanged, the quantity of output has not changed in the relevant measurement. Therefore, a rise in nominal GDP is most plausibly caused by an increase in the general price level, meaning inflation. Option B is correct; the other choices do not explain this relationship.

Correct answer: A. One thousand rupees

Explanation: Real output is valued using current-year quantities but base-year prices, because the purpose of real GDP is to remove the effect of price changes. Therefore, real output value = 20 units × ₹50 = ₹1,000. Option A is correct. The value ₹1,200 results from using the current price of ₹60 and is therefore the nominal output value, not the real value.

Correct answer: A. Both will rise by about twenty percent

Explanation: Nominal GDP equals current prices multiplied by current quantities, while real GDP equals base-year prices multiplied by current quantities. If prices remain constant, the relevant price used in each measure does not change. A 20% increase in output quantity therefore raises both nominal and real GDP by approximately 20%, assuming the same basket and no other measurement changes. Option A is correct.

Correct answer: B. It will remain unchanged

Explanation: Real GDP measures output using fixed base-year prices, so it is designed to exclude the effect of current price changes. Since the quantity of output remains constant, a 10% fall in current prices changes nominal GDP but does not change real GDP. Therefore, option B is correct. A fall, rise, or zero value would require a corresponding change in measured output quantity.

Correct answer: A. Price effect and quantity effect

Explanation: Nominal GDP changes when either the prices of goods and services change, the quantities produced change, or both change together. Consequently, its movement can be separated into a price effect and a quantity effect. Option A is correct. Taxes, population, imports, debt, interest, and saving may influence the economy, but they are not the two direct measurement components of nominal GDP.

Correct answer: A. Growth rate = [(Current real GDP − Previous real GDP) / Previous real GDP] × 100

Explanation: The governing concept is percentage growth relative to a base period. Real GDP growth is calculated as the change in real GDP divided by the previous period’s real GDP, multiplied by 100: [(current real GDP − previous real GDP) / previous real GDP] × 100. Therefore, option A is correct; B reverses the ratio, while C and D do not measure a percentage growth rate.

Correct answer: A. About six percent

Explanation: Nominal GDP changes because of both output changes and price changes, whereas real GDP removes the price effect. For a simple approximation, price-level growth is nominal GDP growth minus real GDP growth: 15% − 9% = approximately 6%. Thus option A is correct. The other choices confuse nominal growth, real growth, or their sum.

Correct answer: A. When current prices are lower than base-year prices

Explanation: Real GDP values current output using base-year prices, while nominal GDP uses current prices. If current prices are below base-year prices, the same quantities receive a higher valuation at base-year prices, so real GDP can exceed nominal GDP. Therefore option A is correct. Higher current prices usually make nominal GDP larger; zero output makes both values zero, and imports alone do not determine this relationship.

Correct answer: A. Because it includes price increases

Explanation: Nominal GDP measures the value of final goods and services at current prices. Consequently, its increase may reflect inflation rather than a rise in the physical quantity of output. Real GDP uses constant base-year prices to isolate production growth. Option A is correct; nominal GDP does measure output value, includes domestic production, and is not always below real GDP.

Correct answer: A. It may remain approximately unchanged

Explanation: Nominal GDP is calculated using current prices and current quantities. If quantities double while prices become half, the two proportional changes offset one another: 2 × 0.5 = 1. Thus, assuming the same goods and no other changes, nominal GDP may remain approximately unchanged. Option B ignores the price fall, while C ignores the quantity increase; D has no basis.

Correct answer: A. Population is growing faster than real GDP

Explanation: Real GDP per capita equals real GDP divided by population. Therefore, total real output can rise while output per person falls if population grows at a faster rate than real GDP. For example, a 3% rise in real GDP combined with 5% population growth lowers the per-capita measure. The information does not imply zero prices, falling nominal GDP, or a changed base year.

Correct answer: A. An increase in real output or prices

Explanation: Nominal GDP per capita equals nominal GDP divided by population, and nominal GDP reflects both quantities produced and current prices. Thus, with population held constant, an increase in real output or in the general price level can raise nominal GDP per capita. Population growth alone usually lowers the measure if GDP does not increase proportionately. Import changes and tax-rate changes are not automatic causes.

Correct answer: A. It will rise

Explanation: The relationship is nominal GDP = real GDP × GDP deflator ÷ 100. If real GDP rises and the deflator also rises, both components push nominal GDP upward, assuming the deflator is expressed as an index. Therefore, nominal GDP will rise. A fall or zero value would require a sufficiently negative component or a special condition, neither of which is stated. Option D also conflicts with the formula.

Correct answer: A. About four point eight percent

Explanation: The percentage increase must be calculated relative to the initial deflator, not merely from the index-point difference. The calculation is [(110 − 105) ÷ 105] × 100 = (5 ÷ 105) × 100 ≈ 4.76%, or about 4.8%. Thus option A is correct. Five points represent an index change, not exactly a 5% price increase; the other values are too large.

Correct answer: B. Twenty percent

Explanation: Nominal growth rate is calculated as [(new GDP − old GDP) ÷ old GDP] × 100. Here, the increase is 1,200 − 1,000 = 200 crore rupees. Therefore, growth is (200 ÷ 1,000) × 100 = 20%. Option B is correct. Ten percent and twenty-five percent result from incorrect comparisons, while two percent is far too low.

Correct answer: A. The remaining growth is mainly associated with price increases

Explanation: Nominal GDP reflects both changes in output and changes in prices, whereas real GDP removes the effect of price changes by using constant prices. If nominal growth is 20% and real growth is 10%, the approximate 10 percentage-point difference mainly suggests a price-level increase. Thus, option A is best; the other choices do not follow from the comparison.

Correct answer: A. Figures may be revised because constant prices and weights change

Explanation: Real GDP values current production using prices from a chosen base year, and statistical agencies may also update the basket and weights when the base year changes. Consequently, historical comparisons and growth rates can be revised even though the physical quantities produced do not automatically change. Option A is correct; the other choices confuse measurement changes with actual economic changes.

Correct answer: A. The entire price rise should not be treated only as inflation

Explanation: Nominal GDP records transactions at current prices, so a higher price can reflect general inflation, improved quality, or both. If quality improves, part of the price increase represents a better product rather than a pure rise in the price of an unchanged good. Option A is correct. The other choices ignore quality adjustment or reverse the meaning of the change.

Correct answer: A. Actual output may be underestimated

Explanation: GDP statistics depend on reported production and reliable valuation. When underground or informal activities are omitted or underrecorded, the measured value of goods and services is lower than the economy’s actual production. Therefore, real GDP may be underestimated, making comparisons and growth analysis less complete. Option A is correct; the other outcomes do not follow from underrecording.

Correct answer: A. Because its market value is not recorded

Explanation: GDP is primarily based on market transactions or on activities for which a reliable monetary value can be imputed. Unpaid household services, such as cooking or caring for family members, usually have no recorded market price when performed within the household. Their exclusion is therefore a measurement limitation, not proof that they lack economic or social value. Option A is correct.

Correct answer: B. Five percent

Explanation: The governing concept is the growth rate, which compares the increase with the previous year's GDP. The increase is ₹2,100 crore − ₹2,000 crore = ₹100 crore. Thus, growth rate = (100/2,000) × 100 = 5%. Option B is correct; 2%, 10%, and 20% result from using an incorrect numerator or denominator.

Correct answer: A. It helps separate changes in output from changes in the price level

Explanation: The governing concept is the distinction between quantity changes and price changes. Nominal GDP uses current prices, so it can rise because of higher output, higher prices, or both. Real GDP uses base-year prices and therefore reflects changes in production volume. Comparing the two helps identify these effects and supports interpretation through the GDP deflator. Hence option A is correct.

Correct answer: A. ₹550 crore

Explanation: The governing formula is Real GDP = (Nominal GDP ÷ Price Index) × 100, when the index has a base of 100. Substituting the values gives (₹660 ÷ 120) × 100 = ₹550 crore. Therefore option A is correct. ₹600 and ₹720 arise from incorrect multiplication or adjustment, while ₹792 multiplies nominal GDP by the index instead of deflating it.