1.

‘Real Gross Domestic Product is a better indicator of economic growth than Nominal Gross Domestic Product’. Do you agree with the given statement? Support your answer with a suitable numerical example. 

Answer»

The given statement is correct. Real Gross Domestic Product (GDP) is a better indicator of economic growth than Nominal Gross Domestic Product (GDP) as it is not affected by changes in general price level.

Numerical Example:

GoodsPrice of Current Year (P1) (in ₹)Price of Base Year (P0) (in ₹) Quantity of Current Year (Q1) (in units)Nominal GDP (P1Q1) Real GDP (P0Q1)
A20101002,0001,000 
B1052002,0001,000
C3020501,5001,000 
∑P1Q1 =5,500 ∑P0Q1 =3,000

In the above example the difference between Real GDP (∑P0Q1) and Nominal GDP (∑P1Q1) is 5,500-3,000 = ₹2,500. This is only the monetary difference as the quantity sold in the market remains unchanged and the variation in the value of GDP is merely due to the change in the prices in the economy. 


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