?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.
Dear Student,
Yes, the given statement, " Real GDP is better indicator of economic growth than nominal GDP".This is because it is not affected by the general price level.
Numerical Example :
In the above example the difference between Real GDP (∑P0Q1) and Nominal GDP (∑P1Q1) is 10,000-4500 = ₹5,500. 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.
Regards,
Yes, the given statement, " Real GDP is better indicator of economic growth than nominal GDP".This is because it is not affected by the general price level.
Numerical Example :
| Goods | Price Of Current Year( P1) | Price of Base Year (P0) | Quantity of Current Goods (Q1) | Nominal GDP (P1Q1) | Real GDP (P0Q1) |
| X | 10 | 10 | 200 | 2000 | 2000 |
| Y | 20 | 5 | 300 | 6000 | 1500 |
| Z | 40 | 20 | 50 | 2000 | 1000 |
| ΣP1Q1 = 10,000 | ΣP0Q1 = 4500 |
In the above example the difference between Real GDP (∑P0Q1) and Nominal GDP (∑P1Q1) is 10,000-4500 = ₹5,500. 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.
Regards,