Nominal GDP and Real GDP are two measures of performance of an economy. Which one fo them gives a true reflection of the performance of the economy? Explain your answer.
Real GDP gives a truer reflection of the performance of the economy compared to Nominal GDP. This is because Nominal GDP only measures the monetary value of goods and services produced in an economy without taking into account inflation or changes in price levels. This means that Nominal GDP can be influenced by changes in price levels rather than actual changes in the quantity of goods and services produced.
On the other hand, Real GDP adjusts the monetary value of goods and services produced in an economy for inflation, providing a more accurate measure of the actual quantity of goods and services produced. By adjusting for changes in price levels, Real GDP allows for a more meaningful comparison of economic performance over time and across different economies.
Therefore, Real GDP provides a more accurate reflection of the true performance of the economy as it takes into account changes in price levels, providing a more accurate measure of economic growth and overall economic performance.