Real GDP and Nominal GDP

Correct answer: B. Two hundred rupees

Explanation: Real GDP per capita is found by dividing total real GDP by the population: 1,200 crore rupees ÷ 6 crore people = 200 rupees per person. The crore units cancel because they appear in both numerator and denominator. Therefore, option B is correct. Option A results from an incorrect division, while C and D fail to divide GDP by the full population.

Correct answer: A. Nominal output depends on both real output and the price level

Explanation: The formula states that nominal GDP is obtained by multiplying real GDP by the GDP deflator divided by 100. Real GDP represents the quantity or volume of output, while the deflator represents the relevant price level relative to the base year. Hence nominal output depends on both real production and prices. The remaining options incorrectly assign single causes or deny the relationship shown by the equation.

Correct answer: B. Ten percent

Explanation: The real growth rate is calculated using the initial, or previous-period, real GDP as the base: [(1,100 − 1,000) ÷ 1,000] × 100 = (100 ÷ 1,000) × 100 = 10%. Therefore, option B is correct. Eleven percent incorrectly uses the final value as the denominator, while five percent and one percent do not represent the stated change relative to the base.

Correct answer: A. Fluctuations in real output

Explanation: The business cycle describes recurring movements in aggregate economic activity, especially expansions and contractions in production. Real GDP measures the value of final goods and services after removing the effect of price changes, so its rises and falls help identify output fluctuations. Option A is correct; stock prices, foreign-exchange reserves and tax rates are separate indicators, not the defining measure.

Correct answer: A. Weakness in economic activity

Explanation: Real GDP measures the economy’s production using prices held constant. A decline over two consecutive periods therefore indicates that the quantity of goods and services produced has weakened, and it may signal a slowdown or recession. Option A is correct. A fall in real GDP does not by itself prove falling prices, disappearing population or zero nominal GDP.

Correct answer: B. One hundred crore rupees

Explanation: The governing concept is absolute change in real GDP, not percentage growth. Subtract the earlier value from the later value: ₹2,100 crore − ₹2,000 crore = ₹100 crore. Therefore, option B is correct. Option A is only half of the actual increase, option C doubles it, and option D gives the final GDP level rather than the amount by which GDP increased.

Correct answer: B. Nominal GDP

Explanation: Nominal GDP is the value of final goods and services produced within an economy, calculated by multiplying each current-year quantity by its current-year price and then adding the values. This measure changes when either quantities or prices change. Real GDP instead multiplies current quantities by base-year prices. Therefore option B is correct; the other aggregates cannot be identified from this specific pricing rule alone.

Correct answer: A. ₹1,000 and ₹1,250

Explanation: Real contribution uses the base-year price: 25 units × ₹40 = ₹1,000. Nominal contribution uses the current-year price: 25 units × ₹50 = ₹1,250. The word “respectively” requires the real value first and the nominal value second, giving ₹1,000 and ₹1,250. Option B reverses the prices, while C and D incorrectly use one price for both measures. Thus A is correct.

Correct answer: B. It removes the effect of price changes and shows changes in output quantity

Explanation: Real GDP is calculated using constant base-year prices, so changes in its value mainly reflect changes in the quantities of final goods and services produced. This makes it more suitable for measuring actual economic expansion than nominal GDP, which can rise simply because prices increased. It does not measure only government income and excludes production outside the domestic economy.

Correct answer: A. Both rise by 5 percent

Explanation: Real GDP measures output at base-year prices, while nominal GDP measures output at current prices. When prices remain unchanged, current prices and base-year prices generate the same proportional quantity effect. A 5% increase in every sector’s output therefore raises both real GDP and nominal GDP by 5%, assuming the stated coverage and prices are unchanged. Consequently, neither measure remains constant and option A is correct.

Correct answer: B. Real GDP will remain unchanged and nominal GDP will rise

Explanation: Real GDP is calculated by valuing current quantities at constant base-year prices. Since the quantities do not change, real GDP remains unchanged. Nominal GDP uses current prices, so a 10 percent rise in the prices of final goods raises the monetary value of production, assuming the relevant quantities and composition remain fixed. Therefore option B is correct; option A wrongly applies current-price changes to real GDP.

Correct answer: B. ₹490

Explanation: Nominal GDP is calculated using both current-year prices and current-year quantities. The first good contributes ₹5 × 50 = ₹250, while the second good contributes ₹12 × 20 = ₹240. Therefore, current-year nominal GDP = ₹250 + ₹240 = ₹490. Using base-year prices would produce real GDP instead, so options based on another price set are not appropriate. Option B is the only correct total.

Correct answer: B. ₹1,500 crore

Explanation: Nominal GDP = Real GDP × (GDP deflator ÷ 100). Substituting the values gives ₹2,000 crore × (75 ÷ 100) = ₹1,500 crore. Therefore option B is correct. Because the deflator is 75, the current-price value is 75 percent of the constant-price value in this comparison. Option A uses an incorrect percentage, option C adds the deflator, and option D divides by 0.75 instead of multiplying by it.

Correct answer: C. ₹2,160 crore

Explanation: The governing formula is Nominal GDP = Real GDP × (GDP deflator ÷ 100). Thus, nominal GDP = ₹1,600 crore × 1.35 = ₹2,160 crore. Option C is therefore correct. Since the deflator is above 100, the nominal value is higher than the real value, which also provides a quick reasonableness check. Option A is too low, option B corresponds to a different factor, and option D overstates the calculated result.

Correct answer: A. Mistaking price changes for changes in output

Explanation: Nominal GDP is calculated using current prices, so it changes when either quantities or prices change. If prices rise because of inflation while physical production stays unchanged, nominal GDP can increase even without real growth. A price-adjusted, or real, GDP comparison isolates the quantity effect. Therefore A is correct; the other choices concern unrelated accounting issues.

Correct answer: C. 20 percent

Explanation: The real growth rate is calculated from the change divided by the initial-year value: (1,080 − 900) ÷ 900 × 100 = 180 ÷ 900 × 100 = 20%. Because real GDP already removes the price effect, this percentage represents growth in output at constant prices. Thus option C is correct; using the final value or adding the two values produces the distractor results.

Correct answer: A. Both use the same year's prices and quantities

Explanation: Nominal GDP values the base-year output at prices prevailing in that same year. Real GDP also values that base-year output using base-year, or constant, prices. Since both measures use identical quantities and identical prices in the base year, their values are equal. The other options are false: production and prices are not zero, and GDP is not limited to government services.

Correct answer: B. ₹1,300

Explanation: Real GDP values current production at base-year prices, so it removes the effect of changing prices. Calculate each good’s contribution: ₹6 × 100 = ₹600 and ₹14 × 50 = ₹700. Adding them gives real GDP = ₹600 + ₹700 = ₹1,300. Therefore option B is correct. Using current prices instead would calculate nominal GDP, not real GDP.

Correct answer: B. Both are equal

Explanation: Nominal GDP values current-year output at current prices, whereas real GDP values it at base-year prices. In the base year, current prices and base-year prices are identical, so both measures use the same prices and produce the same value. Therefore, option B is correct. “Always higher” statements are false because the relationship can change outside the base year.

Correct answer: D. Double

Explanation: The GDP deflator is calculated as (Nominal GDP ÷ Real GDP) × 100. If the deflator is 200, then Nominal GDP ÷ Real GDP = 200 ÷ 100 = 2. Hence nominal GDP is twice, or double, real GDP. Option D is correct. A deflator of 100 would imply equality, while 50 would imply nominal GDP is half of real GDP.

Correct answer: A. 75

Explanation: The GDP deflator formula is (Nominal GDP ÷ Real GDP) × 100. Since nominal GDP is 75% of real GDP, the ratio is 0.75. Therefore, the deflator is 0.75 × 100 = 75. Option A is correct. The value 100 would mean nominal and real GDP are equal, while 125 and 175 would imply nominal GDP is respectively 25% or 75% higher than real GDP.

Correct answer: B. 130

Explanation: The GDP deflator equals (Nominal GDP ÷ Real GDP) × 100. If nominal GDP is 30% higher than real GDP, it equals 130% of real GDP, or 1.30 times real GDP. Thus, the deflator is 1.30 × 100 = 130, so option B is correct. The figure 30 is only the increase rate, not the index value; 100 would indicate no price difference.