Which of the following statements correctly explains why Real GDP is considered a better measure of economic growth than Nominal GDP?

hard Q9 of 15

Economic Awareness - Sectors of Indian Economy

AReal GDP includes transfer payments which Nominal GDP excludes

BNominal GDP is calculated using base year prices, Real GDP uses current prices

CReal GDP adjusts for changes in price level, reflecting true output changes

DNominal GDP excludes government expenditure, Real GDP includes it

Step-by-Step Solution

Step 1: Understand economic growth measurement
Economic growth should reflect changes in actual output, not price changes.
Step 2: Compare Nominal and Real GDP
Nominal GDP is affected by price changes (inflation/deflation), while Real GDP adjusts for price level changes using base year prices.
Step 3: Analyze options
Only the statement that Real GDP adjusts for price level changes and reflects true output growth is correct.
Final Answer:
Real GDP adjusts for changes in price level, reflecting true output changes → Option C
Quick Check:
Real GDP = inflation-adjusted output measure ✅

Quick Trick: Real GDP = true growth after inflation adjustment

Common Mistakes:

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