In the base year, the nominal GDP of a country is Rs 2,000 crore. In the next year, its nominal GDP is Rs 2,640 crore and the GDP deflator is 120 (per cent). By what percentage has the volume of production risen?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 10 per cent
Given:
Base year: nominal GDP = Rs 2,000 crore
Next year: nominal GDP = Rs 2,640 crore
Next year: GDP deflator = 120
The volume of production is measured by real GDP. In the base year, real GDP equals nominal GDP.
Real GDP next year = 2,640 × 100 ÷ 120 = 2,200
Rise in real GDP = 2,200 − 2,000 = 200
Percentage rise = 200 ÷ 2,000 × 100 = 10 per cent
32 per cent is the rise in nominal GDP, which includes the 20 per cent rise in prices.
NCERT (2026-27): “2.4 Nominal and Real GDP … Notice that the ratio of nominal GDP to real GDP gives us an idea of how the prices have moved from the base year (the year whose prices are being used to calculate the real GDP) to the current year. In the calculation of real and nominal GDP of the current year, the volume of production is fixed. Therefore, if these measures differ it is only due to change in the price level between the base year and the current year. The ratio of nominal to real GDP is a well known index of prices. This is called GDP Deflator. Thus if GDP stands for nominal GDP and gdp stands for real GDP then, GDP deflator = GDP gdp . Sometimes the deflator is also denoted in percentage terms. …” “2.4 Nominal and Real GDP … 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. …” |