Consider the following statements and identify the correct one s 1 Compared to Nominal GDP growth ra...........

Economic Affairs Growth and Indicators

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Consider the following statements and identify the correct one/s.

1. Compared to Nominal GDP growth rate, Real GDP growth rate is adjusted for inflation.

2. As a result, Nominal GDP growth rate will always be higher than Real GDP growth rate.

Select the correct answer using the codes given below

1 only

2 only

Both are correct

None of the above

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Explanation:

.....The main difference between nominal and real values is that real values are adjusted for inflation, while nominal values are not. As a result, nominal GDP will often appear higher than real GDP.

Nominal values of GDP (or other income measures) from different time periods can differ due to changes in quantities of goods and services and/or changes in general price levels. As a result, taking price levels (or inflation) into account is necessary when determining if we are really better or worse off when making comparisons between different time periods. Values for real GDP are adjusted for differences in prices levels, while figures for nominal GDP are not.

The second statement is not always true because there could be periods when there is deflation ( a decrease in the general level of prices of goods and services) , in which case the nominal growth rate could be lower than the real growth rate

So, only 1st statement is true