The real-nominal principle can be stated as
A) production generates income.
B) only final goods and services should be counted in GDP.
C) what matters to people is the purchasing power of money or income.
D) only the manufacture of real goods is production.

Question

Quizplus · Accepted Answer

The real-nominal principle is the idea that what matters to people is the purchasing power of money or income, not the actual amount in nominal terms. In other words, inflation can reduce the actual value of money, so people care more about what they can buy with their money (real value) rather than simply how much money they have (nominal value). Option A is related to the concept of production generating income, but not directly related to the real-nominal principle. Option B is related to calculating GDP, but not specifically related to the real-nominal principle. Option D is too narrow and incorrect; the production of services is also counted in GDP.

The Real-Nominal Principle Can Be Stated as