The higher productivity of educated workers adds to economic growth. In national income accounting, real GDP values goods and services at:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → constant prices
Economic growth means a rise in real national income. Real GDP values goods and services at constant prices, so a change in it shows a change in the volume of production. Nominal GDP uses current prices.
This question uses Human Capital Formation in India and National Income Accounting together.
NCERT (2026-27): “Human Capital and Economic Growth: … Economic growth means the increase in real national income of a country; naturally, the contribution of the educated person to economic growth is more than that of an illiterate person. …” Introductory Macroeconomics, National Income Accounting: “… 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. …” |