Real GDP is calculated in a way such that goods and services are evaluated at some constant set of prices. Since these prices remain fixed, if the Real GDP changes we can be sure that it is the volume of production which is undergoing changes. Nominal GDP, on the other hand, is simply the value of GDP at the current prevailing prices.
Which G.D.P. is the indicator of growth and development of a country?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Real G.D.P.
Growth means that a country produces more goods and services. Real GDP values output at a constant set of prices. So a rise in real GDP shows that the volume of production has really gone up.
Nominal GDP can rise only because prices go up, with no extra output, so it cannot show growth on its own. National income and domestic income are measures of income. They do not by themselves remove the effect of price changes.
NCERT (2026-27): “2.4 Nominal and Real GDP One implicit assumption in all this discussion is that the prices of goods and services do not change during the period of our study. If prices change, then there may be difficulties in comparing GDPs. If we measure the GDP of a country in two consecutive years and see that the figure for GDP of the latter year is twice that of the previous year, we may conclude that the volume of production of the country has doubled. But it is possible that only prices of all goods and services have doubled between the two years whereas the production has remained constant. Therefore, in order to compare the GDP figures (and other macroeconomic variables) of different countries or to compare the GDP figures of the same country at different points of time, we cannot rely on GDPs evaluated at current market prices. For comparison we take the help of real GDP. Real GDP is calculated in a way such that the goods and services are evaluated at some constant set of prices (or constant prices). Since these prices remain fixed, if the Real GDP changes we can be sure that it is the volume of production which is undergoing changes. Nominal GDP, on the other hand, is simply the value of GDP at the current prevailing prices.…” |