The question asks for the definition of Nominal GDP. We need to understand the core concept of GDP and how "nominal" differentiates it from other GDP measures.
Correct Option: C) The market value of all final goods and services produced within a country, measured at current-year prices
This option accurately defines Nominal GDP. It includes the market value of all final goods and services produced within a country, and crucially, it specifies that these are measured at "current-year prices," which is the defining characteristic of nominal values (not adjusted for inflation).
The question asks for another common term for Real GDP. Understanding the definitions of Real GDP and Nominal GDP is crucial here. Real GDP measures the value of goods and services produced in an economy adjusted for inflation, providing a more accurate picture of economic growth.
Correct Option: A) GDP at constant prices — Real GDP is calculated by valuing the output of goods and services at the prices of a base year. This removes the effect of inflation, allowing for a true comparison of economic output over time. Hence, "GDP at constant prices" is another term for Real GDP.
The question asks why Real GDP is preferred over Nominal GDP for comparing economic performance across years. This requires understanding the fundamental difference between Real and Nominal GDP and their respective purposes.
D) Removes the effect of price changes and reflects only changes in the physical quantity of output. This is the precise definition and primary advantage of Real GDP. By adjusting for inflation, Real GDP allows for a true comparison of the volume of goods and services produced in different periods, making it a better indicator of economic growth and performance.
The question asks about the relationship between Nominal GDP and Real GDP in the chosen base year. To answer this, we need to understand the definitions of Nominal GDP, Real GDP, and the GDP Deflator, especially how the base year is used in their calculation.
D) Nominal GDP equals Real GDP. In the base year, the prices used to calculate Real GDP are the same as the current prices used for Nominal GDP, making them equal.
The question asks to identify the economic indicator defined by the ratio of Nominal GDP to Real GDP, multiplied by 100. This is a standard definition in macroeconomics used to measure the overall price level in an economy.
Correct Option: D) GDP deflator is the correct answer because it is precisely defined as the ratio of Nominal GDP to Real GDP, multiplied by 100. It reflects the changes in the price level of all goods and services produced domestically.
The GDP deflator is a measure of the overall price level in an economy. It is calculated by dividing Nominal GDP by Real GDP and multiplying the result by 100. This formula helps to understand the inflation or deflation in an economy.
The formula for GDP Deflator is:
\[ \text{GDP Deflator} = \left( \frac{\text{Nominal GDP}}{\text{Real GDP}} \right) \times 100 \]Correct Option: B) The GDP deflator is 120. This indicates that the general price level has increased by 20% compared to the base year (since the base year deflator is 100).