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How does inflation distort the comparison of national income over different years?

medium Q5 of 15
Economic Awareness - Sectors of Indian Economy
How does inflation distort the comparison of national income over different years?
ABy increasing the accuracy of GDP data
BBy reducing the value of nominal GDP
CBy eliminating the need for price adjustments
DBy causing nominal GDP to overstate real growth
Step-by-Step Solution

  1. Step 1: Understand inflation's effect on GDP

    Inflation raises price levels, causing nominal GDP to increase even if real output remains unchanged.

  2. Step 2: Analyze distortion caused

    This leads to an overstatement of economic growth if nominal GDP is compared across years without adjusting for inflation.

  3. Final Answer:

    By causing nominal GDP to overstate real growth → Option D

  4. Quick Check:

    By causing nominal GDP to overstate real growth = correct ✅
Quick Trick: Use real GDP to compare economic growth over time.
Common Mistakes:
  • Confusing inflation's effect as reducing nominal GDP.
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