How is real GDP different from nominal GDP?
A. Real GDP is adjusted for inflation and often appears higher than nominal GDP.
B. Real GDP is adjusted for inflation and often appears lower than nominal GDP. ***
C. Real GDP is not adjusted for inflation and often appears higher than nominal GDP.
D. Real GDP is not adjusted for inflation and often appears lower than nominal GDP.
It wasn’t A
The correct answer is B. Real GDP is adjusted for inflation and often appears lower than nominal GDP.
To understand the difference between real GDP and nominal GDP, it's important to understand what these terms mean. GDP stands for Gross Domestic Product and is a measure of the total value of all goods and services produced within a country's borders over a specific period of time, usually a year.
Nominal GDP is the raw, unadjusted measure of GDP that reflects the current prices of goods and services. It is calculated by valuing the output of a country's economy using the prices that prevailed during the year in which the output was produced.
On the other hand, real GDP is adjusted for changes in prices (inflation or deflation) over time. It takes into account the fact that the prices of goods and services can change from year to year, and aims to measure the actual growth or contraction in output, not just the change in prices. Real GDP is calculated by using a price index (such as the GDP deflator or the Consumer Price Index) to adjust the nominal GDP for inflation.
Because real GDP is adjusted for changes in prices, it often appears lower than nominal GDP. This is because nominal GDP includes the effect of price increases, which can make it appear higher than it actually is. By adjusting for inflation, real GDP provides a more accurate measure of economic growth or contraction over time.
So, the correct statement is that real GDP is adjusted for inflation and often appears lower than nominal GDP (option B).