Why are nominal GDP and real GDP generally equal in the base year?
Answer and explanation
Correct answer: Because current-year and base-year prices are the same
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.
Frequently asked questions
What is the correct answer to this question?
Because current-year and base-year prices are the same
Why is this the correct answer?
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.
Which subject and chapter does this question cover?
This is a Class 12 Economics question. Chapter: National Income and Related Aggregates. Topic: Real GDP and Nominal GDP.
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