The value of GDP at the current prevailing prices is defined as.
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Nominal GDP
To add up bread, cars and haircuts into one GDP figure, each good has to be valued at a price. Valued at the prices of the year in which they are produced, the current prevailing prices, the total is nominal GDP. Since that total can rise just because prices rose, the same goods are also valued at constant prices; that total is real GDP, and it shows the change in the volume of production.
If a country produced 100 units of bread at Rs 10 in 2000 and 110 units at Rs 15 in 2001, its nominal GDP rose from Rs 1,000 to Rs 1,650, while its real GDP at 2000 prices rose only to Rs 1,100.
Why the other options are incorrect
Option (1) Real GDP — Incorrect. Real GDP is valued at constant prices, not current ones.
Option (2) GDP Deflator — Incorrect. The GDP deflator is the ratio of nominal to real GDP, an index of the change in prices, not a value of GDP.
Option (3) Consumer Price Index — Incorrect. The CPI is an index of the prices of a given basket of goods bought by a representative consumer; it measures prices, not output.
NCERT (2025-26): “2.4 Nominal and 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. For example, suppose a country only produces bread. In the year 2000 it had produced 100 units of bread, price was Rs 10 per bread. GDP at current price was Rs 1,000.…” |